WASHINGTON– At the same time credit unions and other financial services providers are arguing the Federal Reserve’s proposed interchange cap is too low, a merchants group is claiming it remains too high.
In a comment letter, the National Retail Federation told the Federal Reserve its plan to lower a 13-year-old cap on debit card “swipe” fees—Reg II--leaves room to lower the cap further.
“We are very appreciative that the board has undertaken to update the interchange rate so that it will no longer depend on data that is now 15 years old,” NRF Chief Administrative Officer and General Counsel Stephanie Martz said in the letter to the Fed’s Board of Governors. “The economic factors that were considered by the Board when it originally set the maximum allowable interchange rate for covered issuers in 2011 based on 2009 data have changed dramatically.”
‘Detrimental to Merchants’
Martz and the NRF further said the new method of calculating the cap “significantly changes the methodology in a manner that is detrimental to merchants and, ultimately, to consumers,” and is “insufficient” to accommodate “future developments that are inevitable in the rapidly changing payments industry.”
As CUToday.info has reported, the current cap of 21 cents per transaction was established in 2011 following merchant complaints debit card swipe fees were far too high and Congress responded with provisions in the Durbin Amendment, a 2010 law directing the Fed to require that the fees be “reasonable” and “proportional” to banks’ costs.
The cap applies only to cards from banks with at least $10 billion in assets.
What Proposal Would Do
The proposal under consideration would lower the cap to 14.4 cents to reflect Fed research showing banks’ average cost had fallen to 3.9 cents as of 2021. The NRF is arguing the amount 3.7 times banks’ average cost and was determined by new methodology intended to ensure that actual costs are covered for 98.5% of banks.
Rather than reducing banks’ profits on debit card swipe fees, “the largest issuers in the country are further guaranteed a higher profit margin,” Martz said. “If the existing methodology reflects a ‘reasonable and proportional’ interchange fee as the Board has advocated for years, the new methodology does not.”
How Credit Unions See It
As CUToday.info reported here, during a call with media this week America’s Credit Unions Carrie Hunt said the issue isn’t so much the reduced size of the interchange fee cap the Fed is proposing as much as it is it shouldn’t be reduced at all.
“We think this should be going in the opposite direction,” said Hunt. “They are not looking at the right data on this rulemaking.”
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