The Fed announced this week that the Board will meet next Wednesday to consider “proposed revisions to the Board’s debit interchange fee cap.” No other details were released.
Since 2011, banks with at least $10 billion in assets and follow rates set centrally by Visa and Mastercard have been allowed to charge no more than 21 cents per debit card transaction – plus 1 cent for fraud prevention and 0.05 percent of the transaction amount for fraud loss recovery. Banks can charge more if they set the fees themselves, but no major banks have. Smaller banks are exempt and can charge as much as they like.
In 2010, Congress passed legislation directing the Fed to adopt regulations requiring that debit card swipe fees – which averaged about 45 cents per transaction – be “reasonable” and “proportional” to banks’ costs. The Fed found that banks’ average cost to process debit transactions was about 8 cents but set the maximum at 21 cents under heavy lobbying by banks.
The 21-cent rate has remained in effect even though surveys conducted by the Fed every two years have shown that banks’ costs have fallen steadily since then and were at an average 3.9 cents as of 2019. A report on costs as of 2021 that was expected this past spring has yet to be released.
The swipe fee regulation and a related provision of the 2010 law giving merchants the right to choose which networks process debit transactions have saved merchants an estimated $9 billion a year, and studies show about 70% of the savings has been shared with consumers, largely by holding down price increases.
Debit card swipe fees cost merchants and their customers $34.4 billion in 2022, up 5 percent from 2021, according to the Nilson Report. When all types and brands of cards are included, credit and debit card swipe fees totaled $160.7 billion in 2022 and had more than doubled over the previous decade. The fees are most merchants’ highest operating cost after labor, driving up consumer prices and amounting to over $1,000 yearly for the average family.