Retailers Disappointed by Fed’s Vote on Swipe Fees

Bringing a conclusion to months of furious Washington lobbying, the Federal Reserve on Wednesday, June 29, voted to set a cap on swipe fees for debit cards at 21 cents, a conclusion that pleased neither banks nor merchants.

As part of the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed last year, the Fed was given the task of implementing swipe fee reforms. In December 2010, it issued proposed rules that would set a maximum swipe fee of 12 cents per debit card transaction, down from an average of 44 cents. According to merchant trade associations, retailers paid $20.5 billion in fees in 2010 to accept debit cards, as reported by the New York Times. Under the new rules, the Fed estimates large banks will see their fee revenue decline by more than 40 percent, as reported by the Wall Street Journal.

Retailers, who had seen the recent failure of an attempt to delay reform in the Senate as a positive sign, were clearly disappointed by the Fed’s ruling. “The announcement today from the Federal Reserve is a disappointment to merchants and consumers who face unfair and excessive fees imposed by big banks and credit card companies,” said Sandy Kennedy, the president of the Retail Industry Leaders Association. “The Federal Reserve’s about-face suggests it abandoned the facts that the Board embraced in the December proposed rules, instead ceding to the wishes of the big banks and credit card companies.”

Matthew Shay, president and CEO of the National Retail Federation, commented that “American consumers suffered a major loss today. We are extremely disappointed that the Federal Reserve chose to be influenced by special interests and ignored the will of Congress and American consumers. While the rate will provide modest relief, it does not go far enough.”

The new rules will go into effect on October 1, and the Fed has agreed to monitor the swipe fee charges to determine how the revenues of small banks are affected and how retailers are complying with the changes, as reported by the New York Times.