Fed Votes to Limit Debit Card Swipe Fees

By MichaelJames

Jun 29, 2011 7:19pm

ABC News' Tom Giusto reports:

The Federal Reserve today voted to limit the fees banks can charge every time a debit card is swiped. But it compromised with its own original proposal by deciding not to cut the fees as much as planned and delaying the start date by two months.

The Fed acceded to a strong lobbying campaign by the banking industry and decided so-called “swipe fees” should be capped at 21 cents per transaction, not the 12 cents it originally proposed.

But that’s still less than half the average 44 cents merchants pay now. Under the current system, stores pay banks 1 to 2 percent of the transaction amount. When the new system takes effect Oct. 1, transactions will be capped at 21 cents, plus a little bit more to cover fraud prevention. The original proposal called for the cap to begin on July 21.

Debate over this new rule was so robust it generated 11,000 comments to the Federal Reserve Board.

The banks mounted a lobbying campaign in Congress and with the Fed, and they succeeded in convincing the Fed that the 12-cent cap was too low.

Banks take in at least $16 billion a year from debit card swipe fees. Debit cards have become the most popular form on non-cash payments. More than 500 million debit cards are issued in the United States and they are used 50 billion times a year. The financial stakes are high for both merchants and banks.

It’s hard for anyone to predict the impact of this new cap on fees. Merchants will pay less to banks and thus have an incentive to keep prices down. Banks will get less revenue from debit cards so they could increase other bank-related fees and drop some rewards benefits.

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