Financial Reform Bill Signed Into Law With Swipe Fee Amendment

On Wednesday, July 21, President Obama signed into law a sweeping financial reform bill that, among other changes, would regulate swipe fees charged by banks for debit-card transactions. Last week, the Senate passed by a vote of 60 to 39 the conference report to the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173).

In June, the American Booksellers Association joined more than 200 national and state organizations representing a diverse array of small businesses in calling for the House to support Sen. Durbin's amendment regulating swipe fees. The groups included the Retail Council of New York and the Retail Industry Leaders Association (RILA).

Under the Durbin "swipe fee" amendment, the Federal Reserve has the authority to develop regulations to ensure that swipe fees imposed on debit card transactions are proportional to the cost incurred in processing the transactions. The final agreement allows the Federal Reserve to take the fraud prevention costs of banks into consideration.

In 2009, businesses paid Visa and MasterCard $19.71 billion on debit card transactions, according to The Nilson Report. Many of these businesses have long contended that the interchange fees charged by the banks, which average approximately one percent to two percent of the transaction amount and are much higher than similar fees for processing paper checks, are unfair. Interchange fees are regulated in many countries. Visa Europe announced that it is voluntarily dropping debit card swipe fees to 0.2 percent in Europe at the same time that Visa increased rates on similar transactions in the U.S. by some 30 percent.

To help retailers better understand the Durbin amendment, RILA has created a summary of the interchange provisions [1] contained in the financial reform bill. Among the reforms to debit card fee regulations, the Federal Reserve is now charged with issuing new regulations within nine months on whether debit card interchange rates are "proportional to the cost incurred by the issuer with respect to the transaction."

The Federal Reserve also has the authority to adjust upward debit card interchange rates on a per-issuer basis if the issuer takes steps to reduce fraud through a number of means, including implementation of cost-effective fraud prevention technology.

The Durbin amendment also prohibits credit card companies from restricting the ability of businesses to offer discounts for payments made by cash, checks, debit cards, or credit cards. However, discounts may not differentiate between card issuers or card networks. And businesses are permitted to set a minimum transaction amount of up to $10 for credit card transactions, with authority given to the Federal Reserve to increase this amount.