The Federal Reserve will soon make a definitive ruling on capping interchange fees, or debit card swipe fees charged to merchants by banks. The Fed was mandated to set a cap on the fees by the 2010 financial reform laws, but it may set the cap higher than anticipated.
Merchants cheering prospect of lower swipe fees
For the past year, there has been a tug-of-war in the press and in Congress over interchange fees, the fee that banks charge merchants to wire money from the accounts of customers who have made purchases with debit and credit cards. Merchants ranging from small mom and pop stores to corporate juggernauts such as Walmart and Target, according to Bloomberg, lobbied members of Congress to vote in favor of the interchange fee cap. Financial industry titans such as Bank of America and JPMorgan Chase, along with small credit unions and community banks, lobbied members of Congress to do the opposite and delay any “swipe fee” cap, if not vote to get rid of the legislation outright. The Federal Reserve, according to DailyFinance, is going to announce the cap on swipe fees soon.
Cap could be set higher
The Fed had tentatively said it would cap interchange fees at 12 cents per transaction, but insiders are saying that the fees could be set as high as 24 cents per transaction. Currently, merchants are charged an average of 44 cents per transaction, according to MarketWatch. If fees are set at 12 cents per transaction, it will be a reduction of almost 75 percent. It only costs banks about a penny to make the transaction. The banking industry is estimated to take in more than $1 billion per month from swipe fees. The cap on the debit and credit card transaction fees is a portion of the Dodd-Frank Act, the financial reform laws that were passed in 2010. The card fee cap was mandated by the Durbin amendment to the Dodd-Frank Act, which will take effect on July 21.
Expect user unfriendliness
Due to the massive loss of revenues, consumers can expect that many former perks of banking will either disappear or come with far more conditions. A debit card transaction cap has been bandied about in the press by megabanks such as JPMorgan Chase and Wells Fargo, and free checking accounts have largely gone extinct. Changes to rules regarding overdraft protection fees have cost banks dearly, as well. It is estimated that banks and credit unions have lost about $1.6 billion in revenue, according to MyBankTracker, when financial reform laws mandated that customers have to be asked if they want to “opt-in” to overdraft protection programs. Faced with a drop in revenue that the banking industry is used to, the consumer is the party who will end up feeling the pinch.