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Federal Reserve: Debit Card Fee Cap Proposal

December 18, 2010

The Federal Reserve has opened to public comment proposed caps on debit card transaction fees retailers pay to card issuers.

The Federal Reserve has spelled out options it is considering that would apply to banks with more than $10 billion in assets.

One option would set the fee initially at 7 cents per transaction with a cap set at 12 cents. The second would set a "stand alone cap" of 12 cents per debit card swipe.

As a third option, the Fed said it would consider setting a fee that is based on processing costs to banks including "costs associated with fraud prevention."

The Washington Post reported Friday the average "swipe fee" for debit cards is currently 44 cents and retailers applauded the possibility of paying less.

Hank Armour, chief executive of National Association of Convenience Stores said there was "an abundant amount of evidence cost savings will be passed through," to consumers, although the Fed is not considering a mandate to have the savings show up on price stickers.

American Bankers Association Chief Executive Officer Edward Yingling said, "The proposal seems little more than direct government interference in the card payments system on behalf of large retailers and at the expense of everyday consumers."

Sen. Richard Dubin, D-Ill., said he was concerned about how banks would try to make up the difference. Debit card swipe fees currently generate about $16 billion a year for banks.

"I worry that the banks and credit card companies, faced with change and reform, will do the same thing they've always done: Create a new product, create a new fee, find a new loophole," Dubin said.

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