U.S. Fed weighs easing debit fee cap in final rule

WASHINGTON, June 29 (Reuters) - The U.S. Federal Reserve would dramatically increase a proposed limit on how much banks can charge retailers when a debit card is used, under a staff proposal to be voted on later on Wednesday.

The Fed's staff is recommending the board vote to approve a cap of 22 cents per debit card transaction, which would be 10 cents more than the cap proposed in December.

That cap includes a one cent allowance for meeting certain fraud prevention standards.

In addition, banks would be allowed to charge 5 basis points per transaction to accommodate for fraud losses.

Banks such as Bank of America (BAC.N) and Citigroup (C.N), and card network companies such as Visa (V.N) and MasterCard (MA.N), have been lobbying the Fed vigorously to scale back its proposal, saying it would prevent them from covering basic costs.

Before the rule was released, some bank analysts were expecting a 20-cent cap to be the best-case scenario for the industry.

Banks still stand to lose billions of dollars from the fee crackdown required by the Dodd-Frank financial oversight law.

The Fed has said the average amount of fees charged by banks to retailers per transaction was 44 cents in 2009.

The previously proposed 12-cent cap would have cost banks about $14 billion annually, according to credit card comparison website CardHub.com. (Reporting by Dave Clarke; Editing by Tim Dobbyn)