WASHINGTON -- Assistant Senate Majority Leader Dick Durbin (D-Ill.) expressed a small degree of satisfaction with the Federal Reserve's announcement of its final rules reforming the debit-card interchange fee system, but ultimately registered his disappointment with the larger-than-expected cap and longer implementation period that came with the decision. His mixed feelings are being echoed across the industry by both sides in the battle.
The Fed on Wednesday issued the final rule establishing standards for debit-card interchange or "swipe" fees and prohibiting network exclusivity [image-nocss] arrangements and routing restrictions. It voted to set the cap on the fees at 21 cents--more than expected and much higher than the 12-cent cap it had proposed earlier.
Retailers and retail groups for the most part expressed frustration and a sense of betrayal over the Fed's ruling that pegged the swipe-fee cap at a level almost twice as high as had it signaled with its draft proposal. They were apparently persuaded enough by the arguments of the banks and card issuers to restore to them some of the interchange fee the draft proposal--if adopted--would have taken away and giving them some fraud-prevention wiggle room.
(For more on the reaction of NACS, the Merchants Payment Coalition, the Retail Industry Leaders Association and other retailer groups,click here for previous CSP Daily News coverage.)
And expressing the view of many in the retail industry, Ronna Alexander, executive director of the Montana Petroleum Marketers & Convenience Store Association, told The Billings Gazette, "In the overall battle, we'd probably call it a draw at this point."
Steve Turkiewicz, president of the Montana Bankers Association, told the newspaper that banks are pleased that Fed recognized that the new rules should reflect the full cost of processing card transactions, including fraud protections.
Durbin last year introduced an amendment to the Dodd-Frank Wall Street Reform & Consumer Protection Act of 2010 that--among other provisions--directed the Fed to issue rules to ensure that debit swipe fees are "reasonable and proportional" to the processing costs incurred.
"The rules announced by the [Fed] today will finally make swipe-fee reform a reality and help bring fairness, transparency and competition to a debit card system that for years has operated without them," Durbin said Wednesday after the final rule was issued. "The rules, which will take effect on October 1, will give small businesses some relief from the unreasonably high fees that the Visa and MasterCard duopoly fix on behalf of the nation's biggest banks, and consumers will finally begin to benefit from the increased competition, discounts and lower prices that reform will bring."
He added, "I am disappointed, however, to see that the Federal Reserve has yielded to the big banks in certain parts of its final rulemaking. The inflated cap and extended delay that the Fed announced today will unnecessarily take money out of the pockets of consumers and small businesses and give it to big banks that neither need nor deserve it. The credit-card companies, Wall Street banks and their allies will no doubt continue to try to fight reasonable swipe fee reforms, but I will do everything in my power to ensure that Main Street comes out ahead of Wall Street."
Meanwhile, Frank Keating, president and CEO of the American Bankers Association, spoke for many on the other side of the issue when he said in a statement: "While price controls remain an anathema to free market principles, the [Fed] has taken a significant step in reducing the harm that could have resulted from the proposed rule .... The final rule still represents a 45% loss in revenue that banks use to provide low-cost accounts to our customers, fight fraud and maintain our efficient U.S. payments system .... Consumers will see higher fees for basic banking services, and banks--particularly community banks--will still feel the revenue pressures that this rule will cause."
Time magazine's Moneyland website, responding to this threat, said, "While the retail camp is already positioning this as a giveaway to big banks .... Now that banks will make a lot more money than they planned from debit swipe fees, it'll be tough for them to claim that they have to punish consumers to make up for the shortfall by eliminating debit rewards programs, ratcheting up fees and adding restrictions. In other words, now that the Fed's nearly doubled banks' allowance, it's going to be hard for them to cry poor."
Keating added, "ABA will be watching closely to determine whether market incentives created by this rule inspire retailers to drive business away from community banks, a move that would cause real harm to those institutions and the communities they serve. We will also watch to see whether retailers reward customers with lower prices from their billion dollar windfall or simply pocket the money. We will continue to aggressively advocate for remedies that will mitigate any harm caused by this regulatory action."
Click hereto read the full text of the Fed's final rule.
Please vote in today's CSP Daily News Poll, which asks, "How do you primarily view the Fed's final debit-card swipe rule capping interchange fees at 21 cents per transaction rather than 12 cents? Was it a victory or defeat for retailers, banks or consumers? Did anybody win? Also please email your comments on the subject to Greg Lindenberg at glindenberg@cspnet.com,www.twitter.com/glcspdn or www.facebook.com/glcspdn.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.