WASHINGTON -- While the Federal Reserve’s cap on debit-card swipe fees enacted five years ago has helped reduce costs for retailers and consumers, fees are still higher than Congress intended and should be lowered, National Retail Federation (NRF) officials said in a statement.
The NRF recently sent a letter to the Fed, as the government agency is currently reviewing the cap under requirements of the federal Economic Growth & Regulatory Paperwork Reduction Act of 1996 (EGRPRA).
The National Association of Convenience Stores (NACS) and the Society of Independent Gasoline Marketers of America (SIGMA) also sent a letter that urged the Fed's board of governors of to preserve and strengthen debit interchange rules.
“In most cases, 24 cents per transaction represents a significant savings over the prior noncompetitive pricing,” said Mallory Duncan, senior vice president and general counsel for Washington-based NRF. “However, it is still substantially higher than issuers’ incremental costs.”
Duncan said the cap, passed in 2010 as part of the Durbin amendment (under the larger Frank-Dodd financial reform legislation), “has worked moderately well” but that “additional changes are necessary” if Congress’ goal of swipe fees that are proportional to banks’ costs for processing transactions is realized.
On the point of interchange fees, Gray Taylor, executive director for Alexandria, Va.-based Conexxus, a technology advisory group to NACS, said the convenience-store channel has taken a leadership role in combating fees by converting customers to the Automated Clearing House (ACH) card-processing alternative.
In recent years, many tech-savvy c-store chains have used loyalty programs and fuel discounts to get customers to sign on to ACH payment, which is linked directly to their bank accounts and costs less than traditional debit- and credit-card transactions, Taylor told CSP Daily News.
“It speaks to our ability to capture customers and entice them to an alternative payment that’s cheaper than what we’ve seen even under Durbin,” Taylor said.
With regard to NRF’s appeal to the Fed, Duncan said retailers have passed along two-thirds of the $8.5 billion in annual savings to consumers but there would have been more savings to share if the Fed had set the cap at the level expected by lawmakers.
Under the Dodd-Frank Consumer Protection and Wall Street Reform Act of 2010, the Fed was required to adopt regulations that would result in debit-swipe fees that were “reasonable and proportional” to the actual cost of processing a transaction. Federal Reserve staff calculated the average cost at four cents per transaction and proposed a cap no higher than 12 cents. Nonetheless, after heavy lobbying from banks, the Fed's board of governors eventually settled on 21 cents plus 0.05% of the transaction for fraud recovery and allowed another one cent for fraud prevention in most cases. The cap, which applies only to financial institutions with $10 billion or more in assets, took effect in 2011 and totals about 24 cents on a typical debit-card transaction, NRF officials said.
While lower than the average of 45 cents before the cap was set, NRF argued that the cap included costs that went beyond those allowed under the legislation and filed suit against the Fed in U.S. District Court in 2011. A judge ruled in NRF’s favor and ordered the Fed to recalculate the cap, but an appeals court overturned the ruling and the U.S. Supreme Court refused to grant NRF's petition to review the case.
Duncan said the shift of more fraud liability to merchants last fall under the conversion to Europay MasterCard Visa (EMV) chip-and-signature cards is evidence that the 0.05% for fraud recovery “may no longer have a legitimate basis.”
NRF is one of the world’s largest retail trade associations, representing convenience stores, discount and department stores, home-goods stores, specialty stores, merchants, grocers, wholesalers, chain restaurants and Internet retailers from the United States and more than 45 countries.
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