The Federal Reserve Board has issued a proposal to limit debit card “swipe fees” to as little as 7 cents per transaction, and to cap them at 12 cents. Swipe fees, or “interchange fees” as they are more commonly called, are the fees retailers pay when they accept debit or credit cards from consumers. Currently, merchants may pay as much as 1-2% of the purchase amount when accepting debit cards, and generally pay more when consumers do not enter a PIN (known as “signature-based debit”) than when they do. Both types of transactions would be covered under the proposed rule, and merchants could see their fees go down by an average of 70%.
Retailers have called these fees a “hidden tax” on consumers, and say they will be able to lower prices if interchange fees go down. At the same time, if debit cards become less lucrative for issuing banks, consumers are more likely to see fewer debit card reward programs or free checking accounts. Consumers who use credit cards won’t be directly impacted, as credit card interchange fees are not covered.
The proposed rule was issued as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires the Fed to establish standards to ensure that interchange fees are “reasonable and proportional.” The Board will be accepting comments on the proposed rule from retailers, financial institutions and other interested parties through February 22, 2011 before issuing a final rule that would go into effect July 21, 2011.
Image: Dan Smith, via Wikimedia Commons