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Fed Compromise on Swipe Fees is $3.5 Billion Gift to Banks, Group Says


While the compromise on debit card reform by the Federal Reserve last week still provides some relief for small businesses, it also represents a windfall for big banks, a small business advocacy group claimed.

The Fed voted to cap the fees at 21 to 24 cents per transaction instead of the 12 cents it originally proposed. While disappointing, the National Small Business Association (NSBA) said the action would provide some relief for small business owners. In 2009, the average swipe fee was 44 cents.

The Fed was required to ensure that the swipe fees charged for debit-card transactions are "reasonable and proportional" to the actual costs incurred in processing the transaction.

The rule exempts banks with less than $10 billion in assets and does not apply to credit cards.

The cap still provides a big windfall for big banks, the NSBA said, as the Feds found that its costs banks only 4 cents to process the average debit card transaction.

Moody's, one of the largest credit rating agencies , agreed with that assessment, noting that the higher ceiling will save the banking industry about $3.5 billion in revenue each year.

The rules, which stem from the Dodd-Frank Financial Regulatory Law , restrict the fees that banks charge stores each time a customer uses a debit card — a major profit center for many banks. Originally, the Fed moved to lower the average fee by 70 percent.

The new cap is 75 percent higher than the rule originally proposed. That rule, banking industry lawyers and lobbyists said, would have cost banks between $11 billion and $14 billion a year.

"The final rule grants big banks a more than 500 percent profit every time a consumer uses a debit card," the NSBA said in a statement. "To the small business owners forced to bear the burden of this exorbitant profit margin, this hardly seems 'reasonable and proportional.'"

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