Swipe Fees Decline Significantly

Almost two years after the Durbin “swipe fee” amendment was signed into law as part of the sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act [1], the Federal Reserve reported that the average interchange fee has nearly been halved. Under the Durbin amendment, the Federal Reserve set rules that placed a cap on swipe fees for debit cards at 21 cents.

The bill was signed into law by President Obama in July 2010. The American Booksellers Association had advocated in favor of the Durbin amendment, joining with more than 200 national and state organizations representing a diverse array of small businesses.

As part of its rulemaking process, the Federal Reserve collected 2009 data from payment card networks that indicated the average interchange fee for all issuers was $0.43. Further data collected by the central bank shows that the average interchange fee per transaction received by non-exempt issuers in the fourth quarter of 2011 declined by 45 percent, from $0.43 in 2009 to $0.24. As for signature debit and PIN debit transactions, the average interchange fee per signature debit transaction declined by 57 percent for non-exempt issuers, but only 8 percent for exempt issuers, the central bank reported.

While the lower average interchange fee is good news, retailers had been hoping for an interchange cap lower than $0.21 when the rulemaking process began.

In June 2011, when the Federal Reserve set the swipe fee cap at 21 cents, up from an initial proposed cap of 12 cents, it was met with disappointment from retailers, who believed the cap-fee increase was the result of aggressive lobbying by banks and credit card companies.

In December 2011, the National Retail Federation along with the Food Marketing Institute (FMI), the National Association of Convenience Stores (NACS), and two retailers, filed a lawsuit charging the Federal Reserve of failing to follow key swipe-fee requirements of  Dodd-Frank , NRF’s Washington Retail Insight [2]reported [2].

The groups argued that the Federal Reserve adopted a “flawed cap” on debit card swipe fees. NRF and the other groups contend the failure has allowed big banks to continue charging unjustifiably high swipe fees and has discouraged price competition among credit card networks.

In response to the Fed’s recent report, NRF Senior Vice President and General Counsel Mallory Duncan said in a statement, “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. 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.”