NRF: Proposed Debit Card Swipe Fee Regulations to Help Retailers

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Washington–New proposed limits on debit card swipe fees would result in lower costs for retailers and even discounted prices for consumers.

That’s the view of the National Retail Federation (NRF) which said Thursday its welcomes the Federal Reserve’s crackdown on the fees credit card companies tack onto purchases made with debt cards.

The proposed regulations, which could go info effect in June 2011, would put “reasonable limits” on what banks and card companies charge for debit card transactions. The fees have become an issue since consumers increasingly use debit cards for purchases.

‘Reasonable Fees’ on Card Charges

“These regulations are a significant step toward reigning in credit card industry fees that have driven up prices for consumers for far too long, but we still believe debit card transactions should be honored at face value the same as checks,” said Mallory Duncan, the NRF’s senior vice president and general counsel. “Debit cards are merely plastic checks that draw from the same bank accounts as paper checks, and there’s no reason they should be treated any differently. We will work closely with the Fed as these regulations are finalized to ensure that the reduction in fees–and the amount of money retailers can offer customers as a discount–is maximized

Any reduction in debit card swipe fees at all, large or small, is a benefit for consumers because retailers are highly competitive and will share that savings with their customers, Duncan said, noting that the law would require a major reduction. “The combination of reducing rates and allowing retailers to offer discounts will go a long way toward stopping the current scheme where big banks take a bite out of consumers’ wallets every time they use a debit card.”

The Fed released Thursday proposed regulations intended to implement the Durbin Amendment, a provision of the Dodd-Frank Wall Street Reform Act of 2010 signed into law in July. Sponsored by Senate Majority Whip Richard Durbin, D-Illinois, the amendment required the Fed to set regulations resulting in “reasonable and proportional” swipe fees for debit cards.

The Fed was required to consider banks’ actual costs for processing the transactions and the fact that paper checks drawn on the same accounts are paid at face value. The amendment also barred the card industry from interfering with merchants who offer a discount or other benefit to customers who pay by cash, check or debit card rather than credit card, and allows merchants to set minimum purchase amounts of up to $10 for credit cards.

The proposed regulations will be subject to a 60-day comment period, and the Fed is scheduled to issue a final version by April 21, 2011. When approved, the regulations would go into effect in June.

Hidden Cost to Consumers

Interchange is a fee averaging 1% to 2% for debit cards and 2% to 3% for credit cards that Visa and MasterCard banks charge merchants each time a card is swiped to pay for a transaction. The fees totaled $48 billion in 2008, three times the amount collected when NRF began tracking them in 2001. Debit interchange fees account for about $20 billion of the total.

Card industry practices effectively require the fees to be included in the price of merchandise, costing the average family an extra $427 a year, according to NRF estimates. The fees are hidden from most consumers because they are not disclosed on monthly statements and card companies effectively block merchants from showing them on receipts.