CU Trades Blast Proposed Debit Swipe Fee Cut

Decision comes as Congress considers credit card interchange plan.

David Baumann


Oct 27



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David Baumann

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David Baumann

A squiggly pink arrow pointing downward and to the right.
A debit card about to be swiped.

Financial services trade groups—including CUNA and NAFCU—are blasting the Federal Reserve Board for approving a proposed rule that would decrease the debit card swipe fee at large institutions.

Under the board plan, the cap on an average-sized $50 debit card transaction would decline from 24.5 cents under the current rule to 17.7 cents. Credit unions and banks with under $10 billion in assets would be exempt from the rule.

“While the current debit card system benefits merchants and consumers, it does not come close to covering the real costs debit issuers incur…, and the Fed’s proposal would widen this gap even further,” CUNA President/CEO Jim Nussle said.

A NAFCU official concurred with Nussle’s statement.

“With today’s proposal, consumers, particularly those in underserved communities, would see reduced access to financial services and higher costs for basic services,” NAFCU Senior Vice President of Government Affairs Greg Mesack said. “The Fed must reconsider this proposal and put consumers ahead of greedy merchants, who have proven they will use cost savings to line their own pockets."

Background on Swipe Fees

Under federal law, the Fed is required to determine if the interchange fee received by a large debit card issuer for processing a transaction is reasonable and proportional to certain costs. That requirement is known as the “Durbin Amendment,” is named after Sen. Dick Durbin, D-Ill., who proposed adding it to the Dodd-Frank Act.

Durbin is now pushing a proposal that would require the Federal Reserve to issue rules that would ensure that large credit unions and banks that currently use the four-party card processing system be required to use at least one affiliated network in addition to Visa and Mastercard.

Fed Proposal

Fed officials said the proposal issued this week would adjust the interchange fee to reflect financial institution costs. In addition, the proposed rule would adopt a process that would allow the Fed to adjust those fees every other year.

Fed staff officials said that data shows that the cost incurred by issuers has changed significantly over time.

“As a result, staff believes that the current interchange fee cap may no longer be effective for assessing whether, for a debit card transaction subject to the cap, the amount of any interchange fee received by a debit card issuer is reasonable and proportional to the cost incurred by the issuer with respect to the transaction, as required by the Durbin Amendment,” they said in a memo released as the board considered the proposed rule.

Bowman Opposes Plan

Fed Gov. Michelle Bowman opposed the proposed rule, echoing many of the same concerns as financial trade groups.

“Under the proposed rule, nearly one-third of bank issuers would not be able to recover even the subset of costs that factor into the interchange fee cap, let alone those debit card program costs that are disregarded in the cap,” she said. “Because debit card programs are important to the functioning of the payments system, any increase in price or reduction in availability of debit cards could be harmful for bank customers, particularly low-income customers who may not qualify for credit card products or other alternatives.”

Nussle said that the Fed’s plan is based on data that does not reflect the actual state of covered debit card issuers and new regulatory requirements. He said that merchants have not passed savings from the Durbin Amendment on to consumers.

ICBA Agrees

Rebeca Romero Rainey, president/CEO of the Independent Community Bankers of America also sharply criticized the rule.

“ICBA has deep concerns about the impact of today’s Federal Reserve proposed rule to reduce interchange rates at banks with at least $10 billion in assets, which would harm all community banks and the customers and communities they serve,” she said.

She added, “Durbin Amendment price controls on debit card interchange have distorted the debit card and consumer checking markets solely to the benefit of big-box retailers, such as Walmart, Target, and Amazon.”

Retailers Want More

On the other hand, the National Retail Federation praised the rule, but said it does not go far enough.

“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. “Nonetheless, it still doesn’t get to the ‘reasonable’ level Congress sought and it isn’t proportional to banks’ falling costs.”

Martz said that a large share of the cost of fraud prevention has shifted from financial services providers to merchants.

“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,” he said.

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