The Federal Reserve is charged with issuing its decision next month on the fees that financial institutions charge stores every time a customer pays with a debit card. These interchange fees, as they're called, were for years a hidden cost borne by merchants who wanted to allow customers to use their debit cards.
A lawsuit settlement last year made consumers more aware of the complicated transactions -- $20.5 billion annually -- behind each swipe. The Fed's preliminary take on the issue would cap the fees at 12 cents per transaction, a fraction of the average 44 cents merchants are now charged per swipe.
Merchants want to keep that money, saying that they have to pass along those costs in the form of higher prices to all consumers. Financial institutions say they need the money to process the cards and implement elements like fraud protection, and some have gone so far as to threaten limiting the use of debit cards if the Fed limits their ability to collect these billions.
Advocacy group the Consumer Federation of America sent a letter urging regulators to consider the impact any new rules would have on financial institutions, especially small banks and credit unions, as well as on consumers.
Travis Plunkett, legislative director of the CFA, tells WalletPop via email "We support the intent of the new law requiring lower interchange fees ... but the Fed's proposed method for lowering these fees may not allow banks and credit unions to recoup their actual costs for providing debit cards," he says. As a result, consumers -- especially low- or moderate-income Americans -- could bear the brunt of the fallout if banks hike fees in response.
The Office of the Comptroller of the Currency weighed in with a comment letter, as well. Part of the problem is that while the Fed is under orders to make sure that debit fees are "reasonable and proportional," there's no single definition for that phrase.
Banks argue that 12 cents per transaction isn't enough for them to recover costs for processing the transactions and dealing with issues like fraud. Giving support to the banking industry's argument, the OCC expresses reservations with the Fed's current proposal and urges the agency to consider an alternative outcome in which the Fed would establish a kind of regulatory yardstick for determining what constitutes an appropriate fee without mandating the actual fee amount.
A lawsuit settlement last year made consumers more aware of the complicated transactions -- $20.5 billion annually -- behind each swipe. The Fed's preliminary take on the issue would cap the fees at 12 cents per transaction, a fraction of the average 44 cents merchants are now charged per swipe.
Merchants want to keep that money, saying that they have to pass along those costs in the form of higher prices to all consumers. Financial institutions say they need the money to process the cards and implement elements like fraud protection, and some have gone so far as to threaten limiting the use of debit cards if the Fed limits their ability to collect these billions.
Advocacy group the Consumer Federation of America sent a letter urging regulators to consider the impact any new rules would have on financial institutions, especially small banks and credit unions, as well as on consumers.
Travis Plunkett, legislative director of the CFA, tells WalletPop via email "We support the intent of the new law requiring lower interchange fees ... but the Fed's proposed method for lowering these fees may not allow banks and credit unions to recoup their actual costs for providing debit cards," he says. As a result, consumers -- especially low- or moderate-income Americans -- could bear the brunt of the fallout if banks hike fees in response.
The Office of the Comptroller of the Currency weighed in with a comment letter, as well. Part of the problem is that while the Fed is under orders to make sure that debit fees are "reasonable and proportional," there's no single definition for that phrase.
Banks argue that 12 cents per transaction isn't enough for them to recover costs for processing the transactions and dealing with issues like fraud. Giving support to the banking industry's argument, the OCC expresses reservations with the Fed's current proposal and urges the agency to consider an alternative outcome in which the Fed would establish a kind of regulatory yardstick for determining what constitutes an appropriate fee without mandating the actual fee amount.
