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Are Debit Card Fees Putting a Dent in Your Bottom Line?

If you feel like you’re getting nickel-and-dimed by banks over debit card fees, you’re not alone. Each year, debit card swipe fees total about $20 billion — and most merchants feel compelled to pass these costs along to their customers.

That may all change if regulators heed the comments that the National Retail Federation (NRF) filed with the Federal Reserve Board of Governors yesterday (Feb. 22).  The NRF told the Fed that its proposal to cap debit card swipe fees at 12 cents per transaction doesn’t go far enough, and that the banks should honor debit transactions at or close to face value, the same as banks do for checks.

Debit card fees are currently 1 to 2 percent of each transaction. The Fed made its proposal to cap fees last December in response to the swipe fee reform in last year’s Dodd-Frank Wall Street Reform and Consumer Protection Act that instructed the Fed to establish regulations that would result in “reasonable” debit card fees proportional to banks’ cost of processing debit transactions.

Banks, in their own filings with regulators, have claimed only 4 cents as their cost of processing a debit transaction, the NRF said. The trade group strongly urged the Fed to further reduce the proposed 12 cents per transaction cap “toward a level that more accurately reflects the actual costs.”
The Fed estimates that its proposed cap would save merchants and their customers about 70 percent, or $1.2 billion a month.

“History has shown that by adopting at-par presentment for checks, Congress and the Board got it right,” the NRF said in its filing with the Fed’s Board of Governors. “A century later, Congress has provided the Board with an opportunity to get it right again by renewing the principles embedded in the Board’s at-par checking rules. When every party bears its own costs, the free market will force all parties to strive to minimize their costs and every party will have the potential to win.”

The Fed is currently reviewing comments on the proposed rules, with an April deadline to approve a final version that will take effect in July.

When debit cards were introduced a generation ago, they dramatically lowered the cost to banks of giving customers access to their checking accounts , and some banks even paid retailers as much as 5 cents per transaction to accept the cards.

Reach BusinessNewsDaily senior writer Ned Smith at nsmith@techmedianetwork.com. Follow him on Twitter @nedbsmith.

Ned Smith
Ned Smith

Ned was senior writer at Sweeney Vesty, an international consulting firm, and was Vice President of communications for iQuest Analytics. Before that, he has been a web editor and managed the Internet and intranet sites for Citizens Communications. He began his journalism career as a police reporter with the Roanoke (Va.) Times, and was managing editor of American Way magazine and senior editor of Us. He was a Captain in the U.S. Air Force and has a masters in journalism from the University of Arizona.