Fed Proposes to Cap Debit Interchange

Dec. 20, 2010

The Federal Reserve Board on Thursday delivered news the merchant community had been working toward for years. The Fed delivered a proposal that would establish debit card interchange fee standards and prohibit network exclusivity arrangements and routing restrictions. The Fed said it is requesting comment on two alternative interchange fee standards: one based on each issuer’s costs, with a safe harbor (initially set at 7 cents per transaction) and a cap (initially set at 12 cents per transaction); and the other a stand-alone $.12 per transaction cap. If the Board adopts either of these proposed standards in the final rule, the maximum allowable interchange fee received by covered issuers for debit card transactions would be more than 70 percent lower than the 2009 average, once the new rule takes effect on July 21, 2011. To merchant groups that have been lobbying elected officials for years seeking relief from swipe fees, the Fed’s proposal is welcome, but not what they ultimately desire. “These regulations are a significant step toward reining 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, senior vice president and general counsel for the National Retail Federation. “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.”