Federal Reserve proposes lowering the debit card fees by nearly 30%
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The US Federal Reserve has proposed a reduction of debit interchange fees that banks can charge merchants by almost 30%.
In addition to reducing the fees, the Fed also plans to start reviewing the cap every two years in order to provide a better environment for the retail sector.
Payment fees skyrocketed over the last several years
The move has attracted attention and support from the merchants immediately, as they have been obligated to pay the banks 21% plus 0.05% of the transaction cost for every debit card payment for the last 12 years. On top of these charges, merchants also had to pay a one-cent fraud prevention adjustment, assuming that issuers meet certain standards.
In 2021, interchange fees across all debit and general-use prepaid card payments reached a total of $31.59 billion. Compared to the figure from 2020, this represented an increase of 19.1%, putting a huge strain on the merchants who accepted debit card payments.
On the other hand, the Fed also noted that the costs incurred by issuers have dropped significantly since 2011. This is why it proposed to reduce the base component to only 14.4 cents, in addition to the ad valorem to 0.04% of the payment. However, the fraud prevention adjustment will be raised to 1.3 cents. Combining everything, merchants would see an overall decrease of 28%.
The proposal enters the comment period
As mentioned, the Federal Reserve does not intend to leave the fees at this height indefinitely. Instead, it will update the cap every two years, in order to maintain the balance. The cap will be directly linked to data from the central bank’s biennial survey of large issuers of debit cards.
For the moment, however, this is still only a proposal, and it currently awaits a comment period to see the overall stance toward the idea.
Some comments have already started to arrive. For example, the National Retail Federation welcomed the reduction, acknowledging that it is quite significant. However, it also added that the slashed fees still do not match the failing costs for issuers, so the proposal would not benefit all the parties equally.
In a statement, the National Retail Federation said that the Fed found the average cost was 7.7 cents per transaction. It also proposed a cap of up to 12 cents per payment. However, it settled on 21 cents after the banks interfered through lobbying.
