Transaction fees lowered due to cap, Fed reports

Transaction fees lowered due to cap, Fed reports

Thanks to a cap on fees, retailers are getting a break from debit card companies: their transaction fees have been cut nearly in half, a report says.

The average interchange fee for transactions made by debit card has sharply decreased, according to data released by the Federal Reserve Board. The Fed has published comparative information detailing the fees, which are charged by debit card issuers to merchants that use the issuers' payment networks.

In 2011, as part of the Wall Street reform law, the Fed placed a cap on interchange fees of 21 cents plus a fraction of a percentage of the value of the transaction. Smaller banks (institutions with less than $10 billion in assets) were exempted from this cap, as were a few other types of cards. The cap went into effect in October 2011.

The Fed knew from 2009 data that debit card interchange fees averaged 43 cents per transaction. Its new report, released May 1, 2012, includes data from after the cap went into effect. It shows a significant decline, to an average of 24 cents. The exempted, small banks kept a steady 43 cent average.

Associations representing bankers and retailers, the giant industries lined up on opposite sides of the debit card fee cap, both reacted negatively to the Fed's figures.  Bankers said the regulations went too far, retailers said they didn't go far enough. Both said they have consumers' interests at heart.

The National Retail Association -- which welcomed the regulation -- said it was disappointed the numbers did not decline even more. The Fed's 21 cent cap is nearly twice as high as the 12 cent cap originally set by the Wall Street reform law in 2010 -- the Fed raised the cap in July 2011.

"We believe the numbers for the big banks are too high and had the Fed followed the law there would be significantly greater savings for merchants and their customers," NRF Senior Vice President and General Counsel Mallory Duncan said. "This is working the way the Fed set it up to work, but the Fed didn't fully comply with what Congress required. This is better than paying the full monopoly prices we paid before but they are still partial monopoly prices."

The American Bankers Association trade group released a response as well, suggesting that retailers were pocketing money from the lowered fees, causing customers to pay more in fees to other institutions as they try to adjust. Frank Keating, ABA president and CEO, says ABA does not believe the Durbin Amendment will work in the long term.

The Fed intends to collect and publish this data each year, in an attempt to help issuers and merchants choose payment card networks and to allow policymakers to assess the effectiveness of the cap put in place.

The Fed's data also include an important detail for merchants: details of what each payment card network charges for debit transactions, both by PIN and by signature.

 See related: Five months in, how is the Durbin Amendment affecting banks, merchants and consumers?

Published: May 8,2023