- Associated Press - Thursday, February 17, 2011

The Federal Reserve told Congress on Thursday that it may reconsider its proposal to limit the fee that banks charge merchants for debit card transactions to 12 cents per swipe, the latest twist in a battle over billions of dollars.

Fed Governor Sarah Bloom Raskin made the remark at a House hearing at which lawmakers of both parties attacked the Fed’s plan and asked her to reconsider, saying it would batter banks still reeling from the 2008 financial crisis.

The financial overhaul bill that President Obama and Congress enacted last summer ordered the Fed to issue rules that would set the fees at a reasonable rate. Currently, merchants typically pay between 1 and 2 percent of the transaction’s total and those charges average about 44 cents.

The question of where to set the fees has triggered a lobbying battle pitting merchants and some consumer groups against banks and credit card networks such as Visa and Mastercard.

The Fed’s proposed 12-cent cap would be a major victory for merchants, who say higher fees are hurting their businesses and their ability to create jobs. Banks say cutting the fees would cause them to lose money and force them to raise their charges for checking accounts and other services.

Mrs. Raskin told the House Financial Services Committee’s financial institutions subcommittee that the Fed has received thousands of comments on the proposal and expects many more.

“The other board members and I are reserving judgment on the terms of the final rule until we have an opportunity to consider these comments,” she said, citing the complexity of the issue.

The period for reviewing public comments ends on Tuesday. The financial overhaul law requires the Fed to issue final standards by April 21, and they would take effect in July.

The law’s requirement was sponsored by Sen. Richard J. Durbin of Illinois, the Senate’s No. 2 Democratic leader, who says the current system is unfair to consumers and merchants.

At Thursday’s hearing, lawmakers of both parties said the Fed has not adequately considered the banks’ and card networks’ costs of fraud prevention in proposing lower fees. They also said the lower fees would especially batter small community banks, a powerful constituency in Congress, because larger banks might be able to charge lower fees. The charges are currently mostly uniform.

“If done incorrectly, this could be the final nail in the coffin for many smaller institutions,” said Rep. Ed Royce, California Republican.

Several legislators suggested that the Fed should take more time in issuing its rule.

“We owe it to the American people” to delay the rules, said Rep. David Scott, Georgia Democrat.

Mrs. Raskin told Mr. Scott and other lawmakers that since the deadlines were set by law, only a new law could change them.

Under questioning from lawmakers, Mrs. Raskin said the Fed was not sure how much of the savings merchants would pass on to consumers should the fees be reduced. She also expressed uncertainty over whether it would cause banks to boost charges for their services.

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