A regulatory battle over what’s commonly known as swipe fees has ended with a compromise from the Federal Reserve, and though less than originally proposed, the new fee cap announced Wednesday will still mean revenue loss for most banks that have to comply.
Included in the Dodd-Frank financial overhaul passed by Congress more than a year ago was the Durbin amendment, which proposed a cap on the amounts banks can charge for swipe fees. Swipe fees are what banks charge for each debit card transaction made, typically averaging between 40 and 44 cents per swipe. Merchants pay the transaction fees to banks, ensuring a guaranteed payment on their sales and decreasing the fraud risks often incurred with checks.
The Federal Reserve, the agency charged with implementing the historic financial reform, initially posed placing the swipe fee cap at 12 cents, or 75-80 percent less than what banks currently charge on average. But the Fed, after an outcry from the banking lobby, announced a higher cap of 21 cents to begin Oct. 1, according to The Baton Rouge Business Report’s website.
Banks with less than $10 billion in assets are exempt from the debit interchange fee cap, though smaller banks have raised numerous concerns over whether they might still be affected by the new rule. Bigger banks directly impacted by the new rule have come out strong against the cap and say the lost fee revenues will ultimately be passed down to consumers:
Regions Bank’s south Louisiana market, which has about 90 locations, was facing a $14.8 million annual revenue loss had the fee been fixed at 12 cents ... The break-even point on swipe fees is 22 to 24 cents ... so the bank still will encounter some loss.
Read more here.
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