The U.S. Federal Reserve has issued its final federal regulation limiting the so-called "swipe fee" banks can charge for debit card transactions. That's great, but far from as great as it could have been, according to at least two advocacy groups.
The swipe fee, officially called the" interchange fee" is a fee paid to banks by merchants when a customer pays for goods or services using a debit card. Merchants typically pass the swipe fees on to consumers.
The new regulation just imposed by the Federal Reserve caps the base swipe fee at 21 cents per transaction, which while significantly lower than the current average fee of 44 cents per transaction, is almost double the 12 cent cap originally proposed by the Federal Reserve.
In addition to the 21 cent base fee, banks will also be allowed to charge .05% of the amount of the transaction to help recoup their losses from fraudulent card use.
The cap on debit card transaction fees was a key provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203). The measure directed the Federal Reserve to issue regulations to ensure that fees charged to merchants by credit card companies debit card transactions are reasonable and proportional to the cost of processing those transactions. The banking industry lobby, including the American Bankers Association, strongly opposed the provision.
According to the National Retail Association and Public Citizen, by increasing the fee cap, the Fed let consumers down by "selling out" under pressure from the banks.
"While Congress spoke clearly that fee-fat banks can no longer sneak billions of dollars in stealth charges from debit card users, it appears that the Federal Reserve buckled under the weight of the banking lobby," stated Public Citizen's Bartlett Naylor in a press release.
President and CEO of the National Retail Association, Matthew Shay, called the Fed's action a major loss for consumers. "We are extremely disappointed that the Federal Reserve chose to be influenced by special interests and ignored the will of Congress and American consumers," he said. "While the rate will provide modest relief, it does not go far enough."
Also See:
Credit Card Reform Bill Signed by Obama
Federal Regulations: The Laws Behind the Acts of Congress
About the U.S. Federal Reserve System
Comments
The Federal Government’s reliance upon special interest groups is appalling. Despite the fact that financial institutions’ greed nearly destroyed the US economy, reform has been a myth. Elizabeth Warren could have been a real asset but the Harvard Law Professor has taken the ivory tower method to poke at lawmakers, rendering her ineffective. Our elected officials are supposed to be the people’s lobbyists but tend to end up the stooges of special interest groups. Citizens need an unbiased watchdog group that has teeth to effect financial reform and subsequent oversight.
The latest version of the Fed’s final debit interchange rule has not changed much. It is still good news for retailers and bad one for issuers. It is also still bad news for consumers who are already feeling the rule’s side effects, even before it has taken effect. Anticipating lower revenues, banks have begun creating new or expanding existing revenue sources. As a result, free checking accounts are going away, new bank fees are being introduced and old ones increased, interest rates are being hiked, rewards are being slashed, etc.
So the damage to consumers is already done and it will not be reversed, even if the Fed eventually decided not to change the interchange status quo after all. What we have here is a government-mandated redistribution of revenues from one industry to another, something it has no business doing. http://blog.unibulmerchantservices.com/debit-card-fee-limit-lifted-to-24-cents-consumers-will-still-pay-for-it