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Fed may reconsider limits for debit card swipe fees

WASHINGTON — The Federal Reserve told Congress on Thursday that it may reconsider its proposal to limit the fee that banks charge merchants for debit card transactions to 12 cents per swipe, the latest twist in a battle over billions of dollars.

Fed Gov. Sarah Bloom Raskin made the remark at a House hearing at which lawmakers of both parties attacked the Fed's plan and asked her to reconsider, saying it would batter banks still reeling from the 2008 financial crisis.

At a separate hearing, Fed Chairman Ben Bernanke said the central bank may drop an exemption its proposal would allow for smaller banks because it might leave them charging higher fees, putting them at a competitive disadvantage.

The financial overhaul bill that President Barack Obama and Congress enacted last summer ordered the Fed to issue rules that would set the fees at a reasonable rate. Currently, merchants typically pay between 1 and 2 percent of the transaction's total; those charges average about 44 cents.

The question of where to set the fees has triggered a lobbying battle pitting merchants and some consumer groups against banks and credit card networks like Visa and MasterCard.

The Fed's proposed 12-cent cap would be a major victory for merchants, who say higher fees are hurting their businesses and their ability to create jobs. Banks say cutting the fees would cause them to lose money and force them to raise their charges for checking accounts and other services.

Capping the fee at 12 cents would cost banks $14 billion, according to testimony by David W. Kemper, representing the American Bankers Association and the smaller Consumer Bankers Association.

Doug Kantor, a lawyer representing a coalition of merchants, said that for most merchants, the fees trail only labor as their highest operating cost.

"Debit card swipe fees as they exist today cannot be justified. Banks benefit every time a debit card is used," he said in his written statement.

The period for reviewing public comments ends Tuesday. The financial overhaul law requires the Fed to issue final standards by April 21, and they would take effect in July.

At Thursday's hearing, lawmakers of both parties said the Fed has not adequately considered the banks' and card networks' costs of fraud prevention in proposing lower fees. They also said the lower fees would especially batter small community banks and credit unions, powerful constituencies in Congress, because larger banks might be able to charge lower fees.

The Fed's proposed rule would exempt smaller banks — those with assets of less than $10 billion — from the lower charges. At the Senate Banking Committee, Bernanke said the exemption may not work because merchants might reject debit cards issued by the smaller banks, since the fees they charge could be higher.

Several legislators suggested that the Fed should take more time in issuing its rule.

Fed may reconsider limits for debit card swipe fees 02/17/11 [Last modified: Thursday, February 17, 2011 9:01pm]

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