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WASHINGTON – More than 60 national and state organizations representing consumers and merchants have called on Congress to reject legislation introduced by Rep. Blaine Luetkemeyer, R-Mo., that would delay the Federal Reserve’s proposal to reduce the regulated rate for debit card swipe fees.
“Every day of further delay in the Fed’s consideration of its proposed rule means another day in which large card-issuing banks are deducting significantly more money out of debit transactions than is reasonable, proportional, or allowable under the law Congress passed,” the groups said. “That is why financial industry trade associations are seeking to delay the Fed as long as possible from taking action to update its 2011 regulation – delay preserves what for them is an enormously lucrative status quo.”
The comments came in a letter signed by 66 groups ranging from consumer advocates to retail trade associations that was sent to members of the House Thursday morning.
The letter comes as the House Financial Services Committee holds a subcommittee hearing on H.R. 7531, the Secure Payments Act, which was introduced in the House on Tuesday by Luetkemeyer and seven cosponsors. The bill would require the Fed to conduct an in-depth analysis of the impact of the proposed reduction in swipe fee rates and issue a report to Congress before it could be enacted.
The letter argued that the Fed has already postponed the deadline for public comments on its proposal by 90 days, to May 12, at the request of the banking industry, providing “ample time” for review. The bill would require a “second, duplicative study” of issues already being raised in the comment process and is a “transparent effort to further delay what the Fed has identified as necessary revisions.”
Under regulations established in 2011, banks that have at least $10 billion in assets and follow rates centrally set by Visa and Mastercard can charge up to 21 cents per debit card transaction plus 1 cent for fraud prevention and 0.05 percent of the transaction amount for fraud loss recovery. Banks can charge any amount they want if they set the fees themselves, but no major banks have done so. Smaller banks are exempt and can charge as much as they like.
Last October, the Fed proposed reducing the basic amount allowed to 14.4 cents per transaction while increasing the amount for fraud prevention to 1.3 cents and lowering the amount for fraud loss recovery to 0.04 percent. Going forward, the rate would be updated every other year by linking the amount allowed to data on banks’ costs.
The 2011 rate was set after Congress passed legislation in 2010 directing the Fed to adopt regulations requiring that debit card swipe fees – which then averaged about 45 cents per transaction – be “reasonable” and also “proportional” to banks’ costs to process the transactions. The Fed found banks’ average cost was 7.7 cents but set the maximum at 21 cents under heavy lobbying by banks.
The 21-cent rate has remained in effect even though surveys conducted by the Fed every two years have shown that banks’ costs have fallen steadily since then and were at an average 3.9 cents as of 2021, according to the Merchants Payments Coalition.
The swipe fee regulation and a provision of the 2010 law letting merchants choose which networks process debit transactions have saved an estimated $9 billion a year and studies show about 70% of the savings has been shared with consumers, largely by holding down price increases. Nonetheless, the savings could have been higher had the Fed set a lower rate or adjusted rates to follow banks’ falling costs.
Debit card swipe fees cost merchants and their customers $34.4 billion in 2022, up 5 percent from 2021, according to the Nilson Report. When credit cards are included, swipe fees totaled $160.7 billion in 2022 and have more than doubled over the previous decade. The fees are most merchants’ highest operating cost after labor, driving up consumer prices by over $1,000 a year for the average family.
