NRF Says Swipe Fees Didn’t Fall Enough

BUSINESS WIRE – Numbers released by the Federal Reserve Tuesday show debit card swipe fees collected by the nation’s largest banks have dropped significantly since reform regulations took effect last fall, but the National Retail Federation expressed disappointment that the fees did not fall further.

“We believe the numbers for the big banks are too high and had the Fed followed the law there would be significantly greater savings for merchants and their customers,” NRF Senior Vice President and General Counsel Mallory Duncan said in a press release. “This is working the way the Fed set it up to work, but the Fed didn’t fully comply with what Congress required. This is better than paying the full monopoly prices we paid before but they are still partial monopoly prices.”

The report showed that the average debit card swipe fee charged by large banks covered under last year’s regulations dropped to an average of 24 cents in the fourth quarter of 2011, down from an average 43 cents in 2009. Debit swipe fees for banks with less than $10 billion in assets, which were not covered by the regulations, remained unchanged as expected.

The fees are largely in accordance with the cap set under the regulations, but NRF and other merchant groups filed a lawsuit against the Fed in federal court in November arguing that the agency set the cap nearly twice as high as what was allowed under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Dodd-Frank said the Fed could consider the incremental costs of acquiring, clearing and settling each transaction and specifically prohibited any other expenses from being used to inflate those costs. Under those guidelines, the Fed initially determined that it costs banks an average 4 cents to process a debit transaction, and proposed that the fees be capped at between 7 and 12 cents per transaction.

After intense lobbying by banks and the card industry, however, final regulations adopted in July 2011 set the cap at more than five times the actual cost – 21 cents plus 0.05 percent of the transaction and, in most cases, an additional 1 cent for fraud prevention.

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