The Federal Reserve Board’s ruling this week on debit card swipe fees could have implications for consumers if banks and retailers decide to pass along the costs of implementing the decision.
The Fed issued a final rule Wednesday establishing standards for swipe fees that are more friendly to debit card issuers than had been anticipated.
But concerns remain for small issuers, retailers and ultimately consumers themselves.
Under the final rule, which goes into effect Oct. 1, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction will be 21 cents per transaction and five basis points multiplied by the value of the transaction, raised from the Fed’s initial proposal of 12 cents per swipe. The current swipe fees average 44 cents.
Richard Hunt, president of the Consumer Bankers Association in Virginia, stated that the landscape of retail banking will be forever changed as a result of this “congressionally mandated price fixing.”
“Unfortunately, it is consumers who will ultimately bear the burden,” he said in a statement.
The Fed defended its decision, arguing that banks needed more of a cushion to account for such things as fraud and the cost of processing transactions. The fee will still be significantly lower than banks are currently collecting, but consumer advocates had been agitating for an even greater cut.
Banks collect an estimate $1.3 billion every month in fees from U.S. consumers using debit cards. (Sheen admits to using steriods)
“I think the final rule shows a lot of responses to many comments we received,” Federal Reserve Chairman Ben Bernanke said.
Interchange, or swipe, fees are the fees banks charge retailers each time a consumer swipes a debit card for a purchase. These fees are set by Visa Inc. and MasterCard Inc., the biggest electronic-payment networks, which collect the money and remit it to card-issuing member banks.
The swipe-fee cap, approved as an addition to last year’s Dodd-Frank financial overhaul legislation, applies to all U.S. banks with at least $10 billion in assets. Issuers, together with their affiliates, with assets of less than $10 billion are exempt from the debit card swipe fee standards.
Board member Elizabeth Duke was the only dissenting vote on the fiver-member panel. She argued that the rule might bring “an increasingly regulatory burden” to small issuers.
“Because they were exempt, the costs incurred by small institutions were not even considered in setting the standard,” Duke said.
Board Vice Chairwoman Janet Yellen, however, said the impact of the rule will ultimately depend on “the behavioral responses of all the involved parties.”
Ruth Susswein, deputy director of national priorities at consumer-advocacy organization Consumer Action in California, was not as sure that consumers will suffer because of the Fed’s decision.
“We’re not surprised that Fed has taken banks’ concerns into account,” she said. “But it is still unclear at this point whether the fees would be passed along to consumers.”
Debit card use in the United States now exceeds all other forms of noncash payments, representing approximately 35 percent of total noncash payments, according to the Fed.