Retailers Tell Fed: Debit Card Swipe Fees Are Still Too Dang High

The Consumerist wrote about retailers’ current attempts to get the Fed to further reduce debit card (just debit card) interchange fees. The article reminds us of the wandering path the payments industry endured to get to the current state of debit card swipe fees:

The Fed initially proposed slashing swipe fees to a maximum of $.12/transaction, but the banking industry threw a fit, resulting in a compromise fee ceiling of $.21/transaction that went into effect in the fall of 2011, plus .05% percent of the transaction (for fraud recovery) and up to $.01 for fraud prevention. Thus, in reality the average swipe fee now comes in closer to $.24.

The retail industry sued, alleging that the Fed had disregarded Congress’ intention with the new law, and in 2013 a U.S. District Court judge agreed, saying that Federal Reserve Board was “inappropriately inflating all debit card transaction fees by billions of dollars.”

But then in 2014, a federal appeals court overturned the lower court ruling, noting that “Congress directed the Board to issue rules that would accomplish a particular objective, leaving it to the Board to decide how best to do so, and the Board’s rule seems to comply perfectly with Congress’s command.”

The industry petitioned the Supreme Court to hear its case, but in Jan. 2015, SCOTUS denied that petition without comment.

One of the arguments that the National Retail Federation makes for lowering fees is the costs that merchants are facing to install EMV capable POS devices and the chargeback expenses that some are currently facing if they are waiting for certifications of devices:

The only way for retailers to put that liability burden back on the financial institutions is to update their payment systems, but the NRF claims that the current delay is due to hardware not being available, and the wait to get their networks certified.

The NRF paints the industry with a broad brush. Many of the largest retailers have completed their migration to EMV. Smaller merchants can buy terminals that are certified. Those retailers with highly integrated or specialized installations do need to insure they have certified terminals. This would be a stronger argument if the true extent of the backlog was more fully understood.

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

Read the full story here