July deadline looming for ruling on debit card fee cap

Debit card

The Senate did not pass an extension on the debit card fee cap. Photo: MoneyBlogNewz/Flickr.com/CC-BY

The deadline for the Federal Reserve to decide on whether to institute a debit card fee cap is in July. The Senate failed to extend the deadline in a close vote, and it appears the Fed will have to make a decision. The cap could have serious implications for consumers.

Federal Reserve has weeks to decide

Among the provisions of the Dodd-Frank Act aimed at reforming the financial industry is the provision concerning interchange fees, the fee that banks charge merchants when people use debit cards to pay for things. Some contend that merchants are paying too high a price, but others say banks will be forced to recoup revenue by passing the loss onto customers. Under Dodd-Frank, the Federal Reserve was given until July 21, 2011, to decide how to cap debit card fees, according to CNN. The Senate tried to pass an amendment that would push the deadline back, but the six-month delay was defeated 54 to 45. Banks currently average a charge of 44 cents per transaction, according to the Wall Street Journal, and the Federal Reserve proposed to cap the swipe fees at 12 cents.

Consumer bureau still lacks director

The Dodd-Frank Act created a Consumer Financial Protection Bureau, an independent agency to regulate consumer finance products like mortgages, credit cards and payday loans. Special adviser to the president Elizabeth Warren has seemingly spent more time in Congress dealing with partisan squabbles than helping to establish the agency, which is what she was appointed to do. It is rumored, according to Bloomberg, that President Obama will nominate former banker Raj Date to head the CFPB. Date has been one of Warren’s top assistants and formerly worked for Capital One and Deutsche Bank AG. Date has to get a Senate confirmation to be head of the bureau.

Possible coming fallout

Earlier this year, several large banks threatened to put cap on debit card usage if debit card fees are capped. If the Federal Reserve caps fees at 12 cents per swipe, consumers will likely pay for it in some fashion. The cap on bank fees last year led to the near-demise of free checking. There is an exception to the swipe fee rules, according to the New York Times. Any financial institution with $10 billion or less in assets is exempt. However, that may be small minority; it’s estimated that fewer than 100 individual banks and three credit unions nationwide fit that criteria. The banking industry earns more than $12 billion of its annual revenue from swipe fees.




Wall Street Journal

New York Times


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