Fed wants to rule in swipe costs on debit card transactions

The Federal Reserve plans to enforce a 12-cent limit on debit card swipe costs as part of a suggestion released December 16. the financial reform bill needs the Fed to rule in debit card swipe fees and other bank practices that put the squeeze on merchants that accept debit cards. Retailers hailed the proposal and charge card issuing banks cried foul as major charge card corporations took a struck on the stock sector.

Information on the Fed swipe limit proposal

No matter what the value is, most credit card companies charge 1 to 2 % of every transaction with the current system of debit card swipe fees. The Fed debit card swipe fee proposal also includes giving merchants a choice from at least two independent debit card networks, a move that would create more competition for Visa and Mastercard. The reason why the Fed came up with the swipe limit proposal was as a result of the financial reform bill. It required that banks have to make debit card swipe fees "reasonable and proportional" to what the bank pays to process the electronic fees. The Fed suggests that banks are likely to have to be more cost efficient. This is what the debit card swipe fee limits would force.

Billions lost by banks this way

About $15 was made in swipe fees by credit card companies. This was in 2009 alone. The Fed swipe fee limit proposal would be a boon for retailers. An analyst at JPMorgan Chase told Bloomberg that banks that issue Visa and Mastercard credit cards could lose 80 to 90 % of that revenue. UBS Investment Research reports that the average debit card swipe fee will drop 75 %. This would be assuming the swipe fee is capped at 12 percent. As outlined by the Fed, debit card swipe fee limits won't change much. Consumers won't even notice. But banks trying to find methods to make up for their ill-gotten gains could cut back on debit card reward programs and come up with more of the creative ways to gouge consumers they’re known for.

Fed swipe fee limits get response from many

As outlined by the National Retail Federation, it could be good for consumers. This would be because discounts are easier to give when merchant's costs are down. Because of the benefits they get from the card payment network, the American Bankers Association said the Fed would be letting retailers stay away from paying their fare share. Visa stock went down 11 % while Mastercard dropped 9 percent following the Fed announced the swipe fee proposal on Thursday.

Articles cited

Washington Post

washingtonpost.com/wp-dyn/content/article/2010/12/16/AR2010121604553.html

Bloomberg

bloomberg.com/news/2010-12-16/federal-reserve-moves-to-reduce-debit-card-fees-visa-mastercard-decline.html

Wall Street Journal

online.wsj.com/article/BT-CO-20101216-713515.html