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WASHINGTON -- Retail insiders are continuing to let the government know what they think of debit card swipe fees. Last week the National Retail Federation told the Federal Reserve that the proposal to cap the fees at 12 cents per transaction does not go far enough. The group argued that banks should honor debit transactions at or close to face value just like checks.
"History has shown that by adopting at-par presentment for checks, Congress and the board got it right," NRF said in comments filed with the Federal Reserve Board of Governors on Tuesday. "A century later, Congress has provided the board with the opportunity to get it right again by renewing the principles embedded in the board's at-par checking rules. When every party bears its own costs, the free market will force all parties to strive to minimize their costs and every party will have the potential to win."
As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Federal Reserve was charged with establishing regulations that would result in "reasonable" debit card fees proportional to banks' cost of processing the transactions. Currently, debit swipe fees are one to two percent of each transaction; however, the Fed proposed in December that they be capped at a flat fee of no more than 12 cents per transaction. Financial institutions with less than $10 billion in assets would be exempt, as CSNews Online previously reported.
NRF noted that banks in their own filings with the Fed have claimed only 4 cents as their cost of processing a debit transaction, and that a study by the payments system consulting firm BetterBuyDesign estimates the cost at one-third of 1 cent for PIN debit and 1.36 cents for signature transactions. NRF said it "strongly urges" the Fed to further reduce the cap "toward a level that more accurately reflects the actual costs."
NRF argued that debit cards are merely plastic checks that draw on the same bank accounts as paper checks and therefore should be treated the similarly. The Fed has required paper checks to be cashed at face value since being directed by Congress to do so in 1916, reasoning that if each party involved with a check had to absorb its own expenses they would have an incentive to reduce the cost, and merchants, customers and banks would all benefit.
The Fed is currently reviewing comments on the proposed rules, with an April deadline to approve a final version so the reforms can take effect in July.