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Merchants seek lower debit-card swipe fees

National Retail Federation asks Federal Reserve to reduce five-year-old cap

The National Retail Federation this week asked the Federal Reserve to lower the five-year-old cap on debit-card swipe fees, saying it was higher than Congress intended.

“In most cases, 24 cents per transaction represents a significant savings over the prior non-competitive pricing,” said Mallory Duncan, NRF senior vice president and general counsel, in a statement. “However, it is still substantially higher than issuers’ incremental costs.”

The NRF’s efforts have been supported by other groups, such as the National Restaurant Association, the Food Marketing Institute and the National Association of Convenience Stores.

The NRA has contended that swipe fees are especially onerous on small-ticket bills, like those in restaurants.

Duncan said the cap “has worked moderately well,” but that “additional changes are necessary” if Congress’ goal of swipe fees that are proportional to banks’ costs for processing transactions is to be realized.

Duncan sent a letter Tuesday to the Federal Reserve, which is reviewing the swipe-free cap under requirements of the federal Paperwork Reduction Act.

A 2015 consumer payments study for Columbus, Ga.-based TSYS, which processes card transactions for merchants, found that 25 percent of patrons used debit cards at coffee shops, 32 percent of consumers used debit cards at quick-service restaurants and 37 percent used debit cards at dine-in restaurants.

Duncan said retailers have passed along two-thirds of the $8.5 billion in annual savings to consumers, but more savings would have been realized if the Fed had set the cap at the level expected by lawmakers, Duncan said.

The NRF said that under 2010’s Dodd-Frank Consumer Protection and Wall Street Reform Act, the Federal Reserve was required to adopt regulations that would result in debit swipe fees that were “reasonable and proportional” to the cost of processing a transaction. 

“Federal Reserve staff calculated the average cost at 4 cents per transaction and proposed a cap no higher than 12 cents,” the federation said. “Nonetheless, after heavy lobbying from banks the Federal Reserve board of governors eventually settled on 21 cents plus 0.05 percent of the transaction for fraud recovery and allowed another 1 cent for fraud prevention in most cases.”

The group said the cap, which applies to financial institutions with $10 billion or more in assets, took effect in 2011, and totals about 24 cents on a typical debit card transaction.

The swipe fees had averaged about 45 cents before the cap, the NRF said. The NRF and other groups sued the Fed in U.S. District Court in 2011. A judge ruled in NRF’s favor and ordered the Fed to recalculate the cap, but an appeals court overturned the ruling, and the U.S. Supreme Court refused to grant NRF’s petition to review the case.

Duncan said last fall’s shift of more fraud liability to merchants under the conversion to Europay MasterCard Visa, or EMV, chip-and-signature cards was evidence that the 0.05 percent for fraud recovery “may no longer have a legitimate basis.”

Washington, D.C.-based NRF represents a variety or retailers, including chain restaurants, in more than 45 countries.

Contact Ron Ruggless at [email protected]
Follow him on Twitter: @RonRuggless

TAGS: Finance
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