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WASHINGTON, D.C. -- The Federal Reserve Board announced a more moderate plan for how to curb the debit card interchange fees, aka "swipe fees," that banks charge merchants. The Fed's new rules, released this afternoon, include a 21-cent base fee that is less restrictive than its previous draft proposal, and allow banks more flexibility in how they charge retailers.
The board reached the base fee through a three-part calculation formula. It also discussed possible exemptions to the fee cap, prohibitions on payment card network exclusivity and other new standards for banks and retailers. The base fee exceeds a 12-cent cap that was proposed last December. The interim final rule will have a 'request for comment' period and go into effect Oct. 1.
The board's final rules follow a recent failed attempt to delay swipe fee reform, as CSNews Online previously reported. The Durbin Amendment, part of the Dodd-Frank Wall Street Reform Act, required that debit card swipe fees be "reasonable and proportionate" to the actual cost of processing a transaction. The board's new proposal applies only to debit cards, not to credit cards or gift cards.
It will be "hard to predict the effect the rule will have on consumers," said a Federal Reserve official, who noted that the board expects "at least some" debit card issuers will reduce or eliminate benefits to consumers." The extent to which savings do get passed on will depend on the competitiveness of the markets in which the merchants operate," the official said, adding that more competitive markets will likely pass more savings on to customers. In markets where consumers see those savings, even customers who pay in cash will benefit, as long as the price of goods remains the same regardless of payment method.
In other swipe fee reform news, banks faced a setback as the 8th District Court of Appeals denied TCF's request for an injunction against the Durbin amendment, according to a report from UnfairCreditCardFees.com.
The court stated in its decision that it found TCF unable to prove a cornerstone of its argument and show that the cost of processing a transaction was above the Federal Reserve's proposed 12-cent swipe fee cap.
"[W]e are skeptical that the Durbin Amendment has even created a sufficient price control on TCF's debit-card business so as to trigger a confiscatory-rate analysis or that the law could, in fact, produce a confiscatory rate. Indeed, the heart of any confiscatory-rate claim is the ability to show that the government has set a maximum price for a good or service and that the rate is below the cost of production (factoring in a reasonable rate of return), which TCF has simply not shown on this record," the court said in its decision.
To download the Fed Board's full ruling, click here.