As required by law, the Federal Reserve recently released its bi-annual report on swipe fees and determined to keep the interchange fee standards (capped at 21 cents plus 5 basis points) and fraud prevention adjustment (1 cent) the same.
The Merchants Payments Coalition (MPC) has noted that the Fed has refused to protect consumers and merchants from the 500 percent mark-up levied by banks and credit card companies every time someone swipes a debit card. The fees directly impact the cost of consumer prices and merchants’ ability to hire employees and keep their doors open.
The report found that while debit swipe fee reforms in the Durbin Amendment protected smaller banks and credit unions from losing revenue, the fees paid to large banks by merchants and their customers are five times the actual cost the banks incur to swipe the card. The Durbin Amendment reduced debit card swipe fees paid to large banks by half but exempted smaller institutions.
The average cost to process a debit transaction is 5 cents, the report found, yet the average actual fees collected on such transactions is 24 cents.
“This report shows that the Fed made a mistake in implementing an effective law. Consumers and merchants should be benefiting more from the reforms,” said Jennifer Hatcher, senior vice president of government and public affairs of the Food Marketing Institute, and MPC member. “No merchants in a competitive marketplace mark up their products and services by 500%. They would be put out of business. It should be the same for banks and credit card companies.”
Debit card fees, as well as credit card fees, have skyrocketed upward even as banks’ costs have been falling. Meanwhile, the banks and credit card companies have stacked the deck against merchants and consumers.
Merchants paid banks more than $30 billion last year in credit card swipe fees — money that could have been used to create jobs and lower prices. If the federal government would step in and stop the price fixing, U.S. consumers could benefit from reduced swipe fees, as in Europe where they are eight times lower.
Merchants don’t know what the fee will be when a customer swipes a credit card until they get their bank statement. There are around 300 different fees, depending upon the type of card and the merchant accepting it. Consumers pay roughly $460 a year in swipe fees through higher prices.
The banks that issue cards are VISA and MasterCard’s customers, not the consumers who use the cards. Under the current system, VISA and MasterCard are motivated to keep banks happy, not consumers.
Debit swipe fee reform, passed by Congress in 2010, required the Federal Reserve to ensure that the fees charged to merchants that accept debit cards, be “reasonable and proportionate” to the cost of the transaction. The law exempted 99 percent of all banks and applied only to those banks with more than $10 billion in assets.
In 2011, the Federal Reserve imposed rules that capped debit swipe fees for non-exempt institutions at roughly 24 cents. The report is available at FederalReserve.gov under Recent Developments. (NACS: www.nacsonline.com)