Angry retailers Thursday promised to fight a new Federal Reserve decision reversing its previous position and nearly doubling the maximum amount banks can charge on “swipe fees” when customers make debit card purchases.
Officials of the Merchants Payments Coalition, a collection of major retailers that has waged a massive lobbying battle with banks this year about the swipe-fee issue, said they were exploring the possibility of a lawsuit to challenge the Fed’s unexpected decision Wednesday.
“It seems that the board has simply bent to the wishes of the banks,” said Mallory Duncan, chairman of the coalition. “This definitely makes it more difficult for merchants to provide the level of benefits we want to provide to customers. We’re still going to work at that, but it’s going to be very difficult.”
Starting in October, banks will be allowed to charge stores up to 21 cents per transaction every time a customer pays with a debit card, instead of the Fed’s earlier proposal of 7 cents to 12 cents. The cost to banks for each swipe transaction is about 4 cents.
“The Fed went the wrong way and ignored the legislative language,” he said. “It’s exactly the opposite direction of what the law was trying to do.”
Meanwhile, the National Grocers Association said Thursday that, despite cutting the fees they pay to banks in half, the rule “provides little benefit” to merchants and does “little to level the playing field.”
“With the release of this final rule, it is clear that the Federal Reserve failed in its responsibility to consumers,” said Christopher Coborn, chairman of the NGA, “unlike in other countries where real reforms have been enacted and enforced.”
Banks aren’t happy, either. Before the reforms came down, they were pocketing an average of 44 cents per transaction. This will cut their profits in half and they say the losses will be passed on to customers through new banking fees for accounts, debit cards and online usage.
Richard Hunt, president of the Consumer Bankers Association, called the swipe-fee caps “congressionally mandated price fixing.”
“I do not believe any industry would welcome government interference in their pricing model,” he said. “Unfortunately, it is consumers who will ultimately bear the burden of Congress‘ gift to big-box retailers.”
The Fed ruling means the blow to the bankers’ bottom line, while substantial, will be less than previously projected, according to the website CardHub.com, which monitors credit card and electric purchase fees.
CardHub estimated Thursday that the reduced swipe fees will cost large banks about $9.4 billion in annual revenue. That’s down from the previous estimate of a $14 billion cost based on the 12-cent maximum charge.
Major banks reported annual revenue of some $23 billion in debit card processing fee revenue last year.
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Tim Devaney is a national reporter who covers business and international trade for The Washington Times. Previously, he worked for the Detroit News, Grand Rapids Press, Portland Press Herald and Bangor Daily News. Tim can be reached at email@example.com.
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