Fed said to unveil debit-card fee limits next week

WASHINGTON Wed Dec 8, 2010 5:54pm EST

Related Topics

WASHINGTON (Reuters) - The Federal Reserve is expected to unveil a proposed rule next week that would limit the transaction fees that banks can charge retailers when a customer uses a debit card, according to two industry sources familiar with the matter.

The rule, mandated by the Dodd-Frank financial reform law enacted in July, is expected to be on the agenda for a December 16 board meeting, according to the sources. Federal Reserve officials have only said publicly that a rule is expected soon.

Banks are eager to learn the details of the proposed rules, which will give them a better idea of how much it will cut into their profits.

It was a hotly contested provision of the new law, and was a win for merchants and retailers who, along with consumer groups, have long sought to curb the fees.

Bank of America said earlier this year that the fee limits could cost it between $1.8 billion to $2.3 billion annually, but some analysts said that estimate is high.

The law requires the Fed to limit these interchange, or swap, fees to a level "reasonable and proportional" to what it costs the bank to process the transaction.

Banks charge the fees each time someone uses a debit card. Card networks like Visa and MasterCard pass the fees on to the banks.

Seeking to blunt the rule's impact as much as possible, banks have argued in letters to the agency that "reasonable and proportional" can mean charging more than the cost of a transaction. They have said the Fed should take a broad view and include fraud prevention costs.

The National Retail Federation estimates that debit card fees, which are about 1 percent to 2 percent of each transaction, total about $20 billion annually, although the federation notes that it is difficult to get the data needed to make a precise estimate.

(Reporting by Dave Clarke. Editing by Tim Dobbyn and Robert MacMillan)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (2)
Gorm wrote:
Back in 1988 when debit cards were but 1% market share we pushed them to garner both consumer and merchant acceptance. As a check replacement merchants bought / rented a terminal, got quicker availability, got payment assurance, paid no interchange fee, could offer consumers cash back as the fixed fee allowed merchants to decrease their cash exposure while accommodating the customer and pay just a fee commensurate with check deposit fee.

THEN banks got GREEDY. They wanted an interchange fee, but still sold / rented the merchants terminals, but turned around and provided incentives to consumers to use their debit card as a credit card (sign vs PIN) so they could make more off merchants. Yes, it was almost criminal.

So. whatever happens banks still benefit from the less costly check clearing operation, will still get some profits, just not as much as they want.

Dec 08, 2010 6:33pm EST  --  Report as abuse
breezinthru wrote:
Ever since the Collapse, I’ve been making a conscious effort to carry cash. I know of one small restaurant that refuses to accept bank cards. Instead, the owner installed a cash machine right across from the cash register.

When I asked why, the owner replied that the bank would make more profit on the breakfast she cooked up for me than she did. She resented that and said her business couldn’t survive like that. As a small retailer, she didn’t have enough negotiating power to press for a more reasonable fee.

Dec 09, 2010 1:36am EST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.