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Fed Defends Debit-Fee Cap Calcs

By Sarah Grotta
August 12, 2015
in Analysts Coverage
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It is hard to believe that it has been 5 years since the Durbin Amendment was introduced and harder yet to believe that the fee caps on interchange that were established are still unsettled and we are still talking about it.

A lawsuit was filed by the National Association of Convenience Stores that claimed, among other things, the Fed a used flawed methodology to calculate the fee limit.

In response to that, The Fed published a multi-page explanation of how they arrived at the decision for $.21 plus 5 basis points per transaction and a fraud-prevention adjustment of $0.01 that issuers may receive if they adopt certain activities.

The NACS argued those costs, which issuers incur during authorization to detect fraud or other irregularities, shouldn’t be part of the math used to determine the standard interchange fee, because they’re actually fraud-prevention tools and aren’t specific to particular debit transactions
On Monday, the Secretary of the Board Robert deV. Frierson explained the rationale behind the Fed’s math:
“Transactions-monitoring systems, such as neural networks and fraud-risk scoring systems, assist in the authorization process by providing information needed by the issuer in deciding whether the issuer should authorize the transaction before the issuer decides to approve or decline the transaction,” Frierson wrote. “In fact, most costs of the authorization process (which are costs Congress required to be considered in determining the interchange fee) assist in preventing some type of fraud.”

Something tells me the conversation about the Durbin Amendment is still not over.

Overview by Sarah Grotta, Director, Debit Advisory Service at Mercator Advisory Group

Read the full story here

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