Federal Reserve report reveals huge mark-ups by banks on debit card transaction fees, causing ripple effect in retail industry
A new report published by the Federal Reserve Board last week reveals further evidence that big banks continue to reap huge dividends from the fees they charge for debit card transactions. The report found that the banks’ cost for debit card transactions in 2013 was as little as 4.4 cents. Despite this, banks continue to charge on average 24 cents per transaction, yielding a profit margin as high as 445%.
This huge markup, levied by the banks every time a consumer swipes a debit card, costs retailers and consumers billions of dollars every year. It has a ripple effect that directly impacts the cost of goods and services, as well as merchants’ ability to keep their doors open and expand their businesses.
Yet, despite this new evidence and the drain these charges continue to have on the economy, the Federal Reserve has no plans to revise the regulations surrounding interchange fees as outlined under the Durbin Amendment of the Dodd-Frank Consumer Protection and Wall Street Reform Act of 2010.
“If the Fed had followed the law passed by Congress, these outrageous fees would be dramatically reduced,” said Mallory Duncan, senior vice president and general counsel at the National Retail Federation and chairman of the Merchants Payments Coalition. “Profit margins this high aren’t tolerated in competitive markets. Main Street businesses and their customers are being fleeced on these swipe fees.”
The U.S. District Court for the District of Columbia ruled in July 2013 that the Fed ignored the intent of the Durbin Amendment and directed it to go back to the drawing board to make sure the fees were reasonable and proportional to what it actually costs banks to process debit card transactions, as directed by Congress. The decision was reversed this spring on an appeal brought by the Fed but NACS and other merchant groups that brought the suit have asked the Supreme Court of the United States to consider the case.