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Although they would have preferred to keep their current price-gouging system, banks and credit card issuers did far better than they thought they would in yesterday's Federal Reserve announcement of final swipe fee rules.
The Fed's new rules, released yesterday 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 fee is almost double the original 12-cent swipe fee cap proposed by the Fed in December. The rules also add 0.05 percent of the transaction amount for fraud prevention. The final rules will begin to be implemented Oct. 31, a more than three-month delay than originally expected.
Acting as a front man for the nation’s biggest banks (who decided to keep a low profile so we wouldn't see them jumping in glee), the Independent Community Banks of America called the fee set forth in the Federal Reserve’s final rule as "better than the originally proposed 12-cent cap" but complained that "this harsh, below-cost price cap will be incredibly detrimental to community banks and their consumers."
For years, big banks and the giant credit card networks used hidden swipe fees and fine print to keep consumers in the dark regarding the actual costs of using their debit cards, said the FMI, in a statement representative of the opinion of most retailer groups. "The disparity between the bank-determined fees assessed for processing paper checks and electronic checks has cost merchants and consumers nearly $20 billion each year. In addition, merchants are charged on average 44 cents to complete a debit-card transaction that costs just 4 cents to process. Closing the gap on these charges would have benefited small businesses and allowed them to put more savings in the pockets of their customers."
NACS called the Fed's final rule "an irresponsible abdication of its legal duty," and I'd add that yesterday's ruling was an abomination of the spirit and intent of the Durbin swipe fee reform amendment.
"Final rules should look like proposed rules. This should have been a clear victory for consumers. We are left to believe that the credibility of the Federal Reserve is in question because it's obvious that political pressure from the big banks has impacted the outcome of the final rules," said NACS Chairman Jeff Miller, who is president of Norfolk, Va.-based Miller Oil Co. "A cap of 21 cents per transaction is better than the current average of 44 cents per transaction, but it is more than 400 percent more than the 4 cents per transaction that the Fed-sponsored survey of banks found to be the real cost of processing a debit transaction."
As for what's next for retailers, it appears that the retail trade associations are mulling their options, both legally and legislatively. Among the ramifications I expect to see:
- Potential legal challenges
- Widening the push for reform of the payments system, including credit cards as well as debit
- More stations offering lower prices for cash
- Bigger push to ACH (automated clearing house) payment and creation of mobile wallets on smart phones
If all else fails, perhaps everyone in the retail industry should protest by cutting up their debit and credit cards.