ARLINGTON, Va. — Food Marketing Institute here last week praised legislators for passing the Dodd-Frank Wall Street Reform and Consumer Protection Act, the massive financial-reform bill that promises immediate changes in the way retailers accept debit cards.
“This is a long-fought victory for supermarkets and their customers across the country. Our members' extensive work on this spans more than the past decade,” said Leslie G. Sarasin, FMI president and chief executive officer. “These fees represent the only completely uncontrollable cost for retailers. Supermarkets and their customers will see the benefits of a system of reasonable and proportional costs in a competitive and transparent marketplace.”
The bill, which was expected to be signed by President Obama, for the first time directs the federal government to monitor and regulate debit-card interchange fees. It gives the Federal Reserve Board nine months to create rules that set a framework for interchange fees to be at a level that is “reasonable and proportional” to the costs incurred by card issuers.
Retailers have argued for years that interchange fees — which can total about 1% to 2% of each transaction — have been a huge profit center for banks and do not reflect the actual cost.
Banks are now expected to argue during the rule-making process that the fees are needed to cover their costs of protection against fraud, an industry source told SN.
“Banks will do everything they can to have the definition of fraud to be as broad and advantageous to them as possible, so they can claim that they are spending a lot of money on preventing fraud, so they can keep a large proportion of the interchange fees,” said the source, who asked not to be identified.
Retailers are expected to counter that argument by showing that a relatively small portion of the fee is spent on fraud prevention.
In a prepared statement, Peter Larkin, president and chief executive officer, National Grocers Association, Arlington, Va., said NGA “is now committed to working with the Federal Reserve Board to establish regulations that will follow the law and the regulatory intent of Congress. The affected credit-card companies and banks have already begun to focus on the regulatory process as a means to weaken the law.”
The Federal Reserve will also have one year to issue regulations that prohibit card issuers from imposing certain restrictions on the networks retailers use to process transactions. This would give retailers more freedom to reduce their costs by shopping for lower-cost networks.
Two aspects of the new law that take effect immediately will allow retailers to begin offering discounts or incentives for consumers to pay using cash, checks, debit or credit cards, and also allow retailers to set a minimum transaction for the acceptance of credit cards, not exceeding $10.
“Eliminating obstacles to giving a discount or other benefit for cash, check or debit cards will make it easier for retailers to reward customers who are clued into these fees and choose not to use credit cards,” said Mallory Duncan, senior vice president and general counsel, National Retail Federation, Washington.
“Passage of this law makes an important first step forward by giving the Federal Reserve Board regulatory authority to reduce debit interchange fees and reform anticompetitive rules,” said Larkin, citing grass-roots efforts on the part of independent grocers.