WASHINGTON -- A new report published by the Federal Reserve Board found that the overall average cost for debit-card transactions in 2013 was 4.4 cents per transaction, down from 5 cents in 2011. The report contains summary information on the volume and value, interchange fee revenue, issuer costs and fraud losses related to debit-card transactions in 2013.
Despite this decline, banks continue to charge on average 24 cents per transaction, yielding a profit margin as high as 445%, according to the Merchants Payments Coalition (MPC).
This markup, levied by the banks every time a consumer swipes a debit card, costs retailers and consumers billions of dollars every year, MPC said. It has a "ripple effect" that directly impacts the cost of goods and services as well as merchants' ability to keep their doors open and expand their businesses, the group claimed.
The Federal Reserve, however, has no plans to revise the regulations surrounding the interchange fees as outlined under the Durbin Amendment of the Dodd-Frank Consumer Protection and Wall Street Reform Act of 2010.
"The board does not plan to propose revisions to the Regulation II interchange fee standard or the fraud-prevention adjustment based on these survey data," it said.
"If the Fed had followed the law passed by Congress, these outrageous fees would be dramatically reduced," said Mallory Duncan, senior vice president and general counsel at the National Retail Federation (NRF) and chairman of the MPC. "Profit margins this high aren't tolerated in competitive markets. Main Street businesses and their customers are being fleeced on these swipe fees."
"The [Durbin] amendment was carefully crafted and its purpose was clearly expressed," Majority Whip, Senator Richard Durbin (D-Ill.), said. "Unfortunately, the board's final rulemaking failed to sufficiently follow the text and purpose of the law. Because interchange fees are ultimately borne by consumers in the form of higher retail prices, consumers have suffered as a result."
Durbin's comments came in a friend-of-the-court brief filed last week in an NRF lawsuit that claims the 21-cent cap set by the Fed in 2011 goes beyond the "reasonable and proportional" level mandated by Congress under the Durbin Amendment provisions of Dodd-Frank.
A U.S. District Court judge agreed with NRF in 2013 that the cap was too high, but the U.S. Circuit Court of Appeals overturned the ruling this spring, citing "ambiguity" in the 2010 law. NRF this summer asked the Supreme Court to hear the case, and is currently awaiting a decision.
In last week's brief, Durbin denied that the law was ambiguous, and said the Circuit Court "essentially gave the board a blank check" to include costs that Congress specifically said could not be used to boost debit swipe fees.
Under the Durbin Amendment, the Fed was only allowed to consider the costs of authorizing, clearing and settling each transaction. The Fed initially calculated those costs at an average of 4 cents per transaction and proposed a cap of up to 12 cents. Durbin said the 21-cent level was set after the banking industry "expressed outrage with the board's draft rulemaking and launched an aggressive lobbying campaign to weaken the draft rule."
"Congress neither instructed nor empowered the board to impose its own policy judgments and engage in a line-drawing exercise between merchants' desire for low fees and banks' desire for high fees," Durbin said. "Congress tasked the board to follow the law Congress enacted, not to circumvent it at the request of the banking industry."
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