WASHINGTON — Retailers and their customers will save billions of dollars when new Federal Reserve regulations cutting debit card swipe fees roughly in half take effect this weekend, the National Retail Federation said.
“Retailers across the nation are developing a wide range of innovative ways to pass these savings along to their customers with lower prices and better value,” NRF SVP and general counsel Mallory Duncan said. “Change won’t come overnight, but consumers will definitely benefit. Reducing these fees will put billions of dollars back into the Main Street economy, helping American families stretch their paychecks and ultimately preserving and creating local jobs to keep America on the road to recovery.”
Under federal regulations made final this summer, the swipe fees, the nation’s largest banks charge merchants use to process debit card purchases, will be capped at no more than 21 cents per transaction – plus 0.05% of the purchase price and, in most cases, an additional 1 cent for fraud prevention – beginning on Saturday. That compares with 1% to 2% of the transaction – about 44 cents on the average retail purchase but several dollars on bigger-ticket items – under current fees. Debit card swipe fees currently total about $20 billion annually, and analysts have estimated the cap will save merchants and their customers about $7 billion. Small- and mid-size financial institutions with less than $10 billion in assets are exempt.
While the cap will produce considerable savings for retailers and their customers on most purchases, some merchants are upset that fees could actually go up on small-ticket purchases. The cap amounts to 27 cents on a $100 transaction, or about one-sixth the $1.50 collected under the current fee schedule. But the cap comes to 22 cents on a $2 soda or cup of coffee, for example, that currently carries a fee of only 8 cents. The regulations would allow banks to charge less than the cap for small purchases, but recent news reports indicate that Visa and MasterCard banks plan to instead charge the maximum allowed.
“Even as these regulations are about to go into effect, banks are trying to turn what is supposed to be a ceiling on these fees into the floor for small transactions even though those fees were already grossly out of proportion to the amount of the purchase,” Duncan said. “Unfortunately, this is all too typical of what we’ve come to expect from the card companies and their banks.”
A number of banks also have threatened to raise other fees in retaliation for the swipe-fee cap, but Duncan criticized their behavior,
“Every time Congress takes a step to protect consumers, the banks use it as an excuse to raise fees,” Duncan said. “That doesn’t mean Congress shouldn’t pass consumer protection laws. It speaks more to the nature of the card industry than to whether swipe-fee reform should have been passed.”