Oct 18, 2023

Retailers urge Fed to lower debit card swipe fee cap

The National Retail Federation (NRF) urged the Federal Reserve to approve lowering its 21-cent cap on debit card “swipe” fees when the Board of Governors meets to consider proposed regulations on the issue.

“Congress told banks a dozen years ago that debit card swipe fees should be ‘reasonable and proportional’ but they’ve never been either,” said Stephanie Martz, chief administrative officer and general counsel for NRF. “It’s time to set the cap that Congress intended and recognize that banks’ costs to process transactions have dropped significantly. Doing so would reduce costs for retailers and give them more savings to share with their customers by holding down prices in a time of inflation. These fees have been too high for too long and we’re glad to see the Fed is finally ready to act.”

The Fed announced that the board will meet Wednesday, Oct. 25, to consider “proposed revisions to the board’s debit interchange fee cap.” Details of the proposal were not released.

The amount large banks and card networks charge retailers to process debit card transactions has been capped at 21 cents – plus 1 cent for fraud prevention and 0.05% of the transaction amount to cover fraud costs – since 2011. The cap applies only to cards issued by banks with at least $10 billion in assets.

Under the 2010 Durbin Amendment, Congress directed the Fed to adopt regulations requiring that debit card swipe fees be “reasonable” and “proportional” to banks’ costs. The Fed found the average cost was about 8 cents per transaction and proposed a cap of up to 12 cents but settled on 21 cents after lobbying by banks.

The Fed was required to review the cap every two years but has kept it the same even though banks’ average cost has steadily fallen, dropping to 3.9 cents as of 2019, the most recent year for which the Fed has released data.

The cap cut the typical debit swipe fee in half and has saved retailers an estimated $9 billion a year, with studies showing retailers have shared at least 70% of the savings with customers. But NRF has long argued that the savings could have been much larger if the cap had been set lower or periodically adjusted as intended by Congress.

NRF sued the Fed in U.S. District Court in 2011, saying the cap was set too high. A trial judge agreed but the ruling was overturned by the U.S. Circuit Court of Appeals for the District of Columbia, and the Supreme Court refused to hear NRF’s appeal. The Supreme Court agreed late last month to take up a 202 challenge to the cap brought by a North Dakota retailer and decide whether the statue of limitations has expired.

Debit and credit card swipe fees have doubled over the past decade and totaled $160.7 billion in 2022, according to the Nilson Report. The fees are among most merchants’ highest operating costs and drive up prices paid by consumers by more than $1,000 a year for the average family. Debit card swipe fees account for $34.4 billion of the total.