Federal Reserve seeks input in latest debit-card swipe-fee proposal

The Federal Reserve Board on Wednesday requested comment on a proposal to lower the maximum interchange fee that a large debit-card issuer can receive for a debit-card transaction. The proposal would also establish a regular process for updating the maximum amount every other year going forward.

By law, the board is required to establish standards for assessing whether an interchange fee received by a large debit-card issuer for processing a transaction is reasonable and proportional to certain issuer costs. The board first implemented this statutory requirement in 2011, setting an interchange-fee cap for debit-card issuers with $10 billion or more in assets.

The proposal would adjust the interchange fee cap to reflect changes in issuer costs since the rule first took effect. For example, the cap on an average-sized $50 debit-card transaction would decline from 24.5 cents under the current rule to 17.7 cents under the proposal. In addition, the proposal would adopt an approach for future adjustments to the interchange fee cap, which would occur every other year based on issuer cost data gathered by the board from large debit card issuers.

The National Retail Federation said the lower cap "is a welcome move but still leaves the fees significantly higher than banks’ cost to process the transactions."

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“This is a significant reduction that will save money for retailers and their customers, and we welcome the progress that has been made,” NRF Chief Administrative Officer and General Counsel Stephanie Martz said in a statement. “Nonetheless, it still doesn’t get to the ‘reasonable’ level Congress sought and it isn’t proportional to banks’ falling costs. The Fed needs to meet that goal, and particularly needs to consider that a larger share of fraud costs has shifted from banks to merchants since the cap was established. Main Street merchants and American families have paid billions of dollars too much and want the Fed to do what Congress intended a dozen years ago.”

The proposal is now subject to public comments for 90 days and must be approved by the board before becoming final. The Federal Reserve Board also approved the release of the latest biennial report detailing data collected from large debit-card issuers on interchange fees, issuer costs and fraud related to debit-card transactions in 2021.

Grocery trade group FMI-The Food Industry Association also applauded the Fed's proposal for a lower interchange fee cap and noted that the move was a long time coming.

“FMI looks forward to providing comments to the Federal Reserve on its proposed rate change to bring these fees to a ‘reasonable and proportional’ level as mandated by statute and to continuing to work with the agency to ensure a competitive, efficient, secure payments marketplace,” FMI President and CEO Leslie Sarasin stated.

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She noted that since the Durbin amendment went into effect in 2011, banks’ costs to process debit card payments has sunk, whereas the regulated capped rates charged to retailers have never been adjusted.

"As the law makes clear, collectively set debit rates charged to merchants must be ‘reasonable and proportional’ in relation to the costs incurred by the card issuers and must be adjusted as the costs to banks fall," Sarasin explained. “The Federal Reserve’s decision today in response to FMI’s petition is a good first step and is the first time that an adjustment to the regulated rate has been proposed since the implementation of the Dodd-Frank Act in 2011. We also welcome the Board of Governors’ proposal that we recommended in our petition to establish an automatic adjustment every two years based on a transparent, predictable formula grounded in data."

In December 2022, FMI and the National Association of Convenience Stores (NACS) filed a joint petition calling on the Fed's Board of Governors to reduce the regulated rate. But FMI said further action is needed beyond Wednesday's proposal.

“While we appreciate the Board of Governors’ proposal to reduce the regulated rate compared to what merchants and consumers pay today—which are initiated by the largest banks who collectively set rates—the proposed maximum rate of up to 17.7 cents put forth by the board does little to ease the economic burden on merchants and further shifts fraud prevention costs onto retailers," according to Sarasin. "Simply put, merchants who have installed Visa- and Mastercard-required PCI equipment and have fraud liability should not also be required to pay an increase in the fraud adjustment, as proposed by the Board of Governors."

*Editor's Note: This article originally appeared in WGB sister publication CSP Daily News. Russell Redman also contributed to this story.