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FMI, NRF, RILA seek lower debit-card swipe fees from Fed meeting
Debit interchange rate remains too high despite falling costs for banks, retail trade groups said.
4 Min Read
FMI and the National Association of Convenience Stores jointly petitioned the Feb last December to take action on the debit interchange rate cap. / Photo: Shutterstock
FMI-The Food Industry Association and other retail trade groups this week welcomed the Federal Reserve Board’s decision to schedule a meeting to consider lowering the regulated debit interchange rate.
The Fed’s open board meeting, for “proposed revisions to the board’s debit interchange fee cap,” is scheduled for Wednesday, Oct. 25, at 1 p.m. ET in the Marriner S. Eccles Federal Reserve Board Building in Washington, D.C.
Legislation enacted over 10 years ago, the Dodd-Frank Wall Street Reform and Consumer Protection Act, had halved the debit-card swipe fee cap to 21 cents and called for the Fed to adjust the cap every two years. However, FMI and other trade associations said the cap has stayed at that level and remains too high, despite a plunge in banks’ average cost to process debit-card transactions.
“FMI applauds the Federal Reserve Board of Governors for scheduling an open meeting to propose adjusting debit-card swipe fees. We have long advocated for the Federal Reserve to reduce the regulated rate to reflect the significantly reduced cost of processing these transactions as was required by the Dodd-Frank Wall Street Reform and Consumer Protection Act,” FMI President and CEO Leslie Sarasin said in a statement.
“FMI and the National Association of Convenience Stores jointly petitioned the board in December 2022 to take action on the debit regulated rate,” Sarasin noted. “We are very pleased that the board is heeding grocery retailers’ call for reform, and we look forward to continuing to work with the agency to ensure a competitive, efficient, secure payments marketplace.”
The National Retail Federation (NRF) noted that, since 2011, the amount large banks and card networks can charge retailers to process debit card transactions has been limited to 21 cents (plus 1 cent for fraud prevention and 0.05% of the transaction to cover fraud costs). The cap applies just to cards issued by banks with at least $10 billion in assets.
Under the 2010 Durbin Amendment, Congress directed the Fed to implement regulations requiring that debit card swipe fees be “reasonable” and “proportional” to banks’ costs. NRF said The Fed found the average cost was about 8 cents per transaction and proposed a cap of up to 12 cents but settled on 21 cents after bank lobbying. Every two years, the Fed was required to review the cap but has held it at the same level while the average cost for banks has declined, falling to 3.9 cents as of 2019, the latest year for which the Fed has released data.
“Congress told banks a dozen years ago that debit-card swipe fees should be ‘reasonable and proportional,’ but they’ve never been either,” according NRF Chief Administrative Officer and General Counsel Stephanie Martz. “It’s time to set the cap that Congress intended and recognize that banks’ costs to process transactions have dropped significantly. Doing so would reduce costs for retailers and give them more savings to share with their customers by holding down prices in a time of inflation. These fees have been too high for too long, and we’re glad to see the Fed is finally ready to act.”
Retailers: Interchange fee cap already should have been lowered
Although the cap cut the typical debit swipe fee in half and has saved retailers an estimated $9 billion a year, NRF has argued that the savings could have been much higher if the cap had been set lower or periodically adjusted as intended by Congress. The federation also said studies show that retailers have shared at least 70% of the debit interchange savings with customers.
NRF noted that it sued the Fed in 2011, claiming the cap was set too high. A trial judge agreed, but the ruling was overturned by the U.S. Circuit Court of Appeals for the District of Columbia, and the Supreme Court refused to hear NRF’s appeal, the association reported, adding that the high court late last month agreed to take up a challenge to the cap brought by a North Dakota retailer.
Austen Jensen, executive vice president of government affairs at the Retail Industry Leaders Association (RILA), called the Fed’s scheduled meeting to “begin the process” of lowering the interchange rate on debit transactions a “long day in the making” for all retailers.
“Over the past 12 years, the largest financial institutions in the country have seen their costs decline and their margins explode. The decision today to adjust debit interchange rates to accurately reflect the actual costs that card networks and the largest banks bear should be applauded,” Jensen stated, adding that RILA “strongly supported” the move. “RILA was a leader in getting debit reforms passed in Congress, and we look forward to continuing to work with the Federal Reserve to set an accurate rate that reflects the true costs in the payment system.”
Citing data from the Nilson Report, NRF reported that debit- and credit-card processing fees have doubled over the past decade, reaching $160.7 billion last year, with debit swipe fees representing $34.4 billion of that total. The trade group noted that the fees are among merchants’ highest operating costs and hike prices paid by consumers over $1,000 a year for the average family.
