Starting Saturday, “swipe fees” that banks charge merchants when customers make debit-card purchases will be capped.
That’s good news for retailers, bad news for banks and uncertain news for consumers.
“The rules set to take effect on Oct. 1 will finally make swipe-fee reform a reality and help bring fairness, transparency and competition to a debit-card system that for years has operated without them,” said Sen. Richard J. Durbin, the Illinois Democrat who introduced the swipe-fee amendment. “These rules will give small businesses some relief from the unreasonably high fees that the Visa and MasterCard duopoly fix on behalf of the nation’s biggest banks.”
Merchants won a showdown with banks this summer. The reform originally was part of the Dodd-Frank Act in 2010, but it was called into question in June and nearly overturned.
“The credit card companies, Wall Street banks and their allies will no doubt continue to try to fight reasonable swipe-fee reforms,” Mr. Durbin said.
By capping the fees, supporters hope merchants will pass on the savings to consumers, but there are no guarantees that will happen.
“We expect retailers to stay true to their word,” said Richard Hunt, president of the Consumer Bankers Association. “Retailers, their trade associations and Sen. Durbin repeatedly stated they would pass along the $10 billion in savings to consumers immediately. I know all Americans are looking forward to this much-needed stimulus package.”
Mallory Duncan, chairman of the Merchants Payments Coalition, said some retailers will cut prices, while others simply won’t raise them anymore.
“This is a pretty significant boon for merchants and their customers,” he said. “We are going to do everything in our power to make sure it works.”
Going forward, swipe fees, which cost banks about 4 cents to process, will be capped at 21 cents. That’s a sharp cut from the average 44 cents that banks have been charging. CardHub.com estimates these reforms will take a $9.4 billion bite out of the wallets of large banks.
To make up for the losses, banks have warned that they will raise other fees and create new ones for consumers.
That’s exactly what Bank of America did. On Thursday, the nation’s largest bank announced plans to charge $5 a month for some debit-card accounts starting early next year. JPMorgan Chase also floated the idea of capping debit-card purchases at $50 to $100 if the regulation is imposed.
“We yelled loud and clear that this would be one of the consequences,” Mr. Hunt said.
Merchants aren’t entirely happy, either. They expected the cap to be set lower from 7 cents to 12 cents. But the Federal Reserve reversed itself and raised the cap to 21 cents. The Fed also pushed the effective date back from July 21 to this Saturday.
“It seems that the board has simply bent to the wishes of the banks,” Mr. Duncan said.