A proposal from the Federal Reserve would cap the amount that large banks can charge retailers to process debit card purchases at 14.4 cents per transaction, plus 1.3 cents for fraud prevention and 0.04% of the transaction amount for fraud costs.
The retail industry, including grocery retail, has expressed support for the Federal Reserve Board of Governors’ decision to initiate a proposed rulemaking that would lower the regulated debit interchange rate and adjust the rate every two years consistent with data, while cautioning that more must be done to bring so-called swipe fees to a “reasonable and proportional,” level as mandated by law.
The Fed’s proposal would cap the amount that large banks are allowed to charge retailers to process debit card purchases at 14.4 cents per transaction, plus 1.3 cents for fraud prevention and 0.04% of the transaction amount for fraud costs. The numbers would automatically update every two years going forward. The proposal will be subject to public comments for 90 days and must be approved by the board before becoming final.
[Read more: “Will Swipe Fee Reform Finally Get Passed?”]
In December 2022, FMI – The Food Industry Association and the National Association of Convenience Stores (NACS) filed a joint petition requesting that the board of governors reduce the regulated rate, and the trade organizations have continued to press the issue.
“The Federal Reserve’s decision … in response to FMI’s petition is a good first step and is the first time that an adjustment to the regulated rate has been proposed since the implementation of the Dodd-Frank Act in 2011,” noted Leslie G. Sarasin, president and CEO of Arlington, Va.-based FMI. “We also welcome the board of governors’ proposal that we recommended in our petition to establish an automatic adjustment every two years based on a transparent, predictable formula grounded in data.”
Added Sarasin: “However, while we appreciate the board of governors’ proposal to reduce the regulated rate compared to what merchants and consumers pay today – which are initiated by the largest banks who collectively set rates – the proposed maximum rate of up to 17.7 cents put forth by the board does little to ease the economic burden on merchants and further shifts fraud prevention costs onto retailers. Simply put, merchants who have installed Visa- and Mastercard-required PCI equipment and have fraud liability should not also be required to pay an increase in the fraud adjustment, as proposed by the board of governors.”
She said that FMI would provide comments to the Fed on getting these fees reduced while ensuring “a competitive, efficient, secure payments marketplace.”
Independent grocers shared a similar view of the proposal.
“This long-overdue announcement by the Fed is a welcome move in the right direction, but it doesn’t go far enough to help American consumers and businesses,” said Greg Ferrara, president and CEO of the Washington, D.C.-based National Grocers Association, which represents the independent sector of the grocery industry. “These swipe fees have a direct impact on independent community grocers’ operations and the viability of their businesses. Reducing the costs of these fees would provide grocers with savings to pass on to their customers and create opportunities for reinvesting in their stores, expanding their workforce and boosting local economies.”
The grocery industry’s sentiments were shared by other powerful voices in the retailer community, including the Washington, D.C.-based Merchants Payments Coalition (MPC), a group representing retailers, supermarkets, convenience stores, gasoline stations, online merchants and others opposed to what they deem unfair credit and debit card fees, and the National Retail Federation (NRF), the world’s largest retail trade association.
“Banks have been charging more than five times their costs for debit card transactions, and the Fed is finally saying that’s too much,” said MPC Executive Committee member and National Association of Convenience Stores General Counsel Doug Kantor. “This is a step in the right direction toward the real, competitive market that Congress wanted to see, but still leaves the fees too high. Merchants and the consumers who ultimately pay these fees have been overcharged for far too long, so we need to get this right.”
“This is a significant reduction that will save money for retailers and their customers, and we welcome the progress that has been made,” observed Stephanie Martz, chief administrative officer and general counsel of Washington, D.C.-based NRF. “Nonetheless, it still doesn’t get to the ‘reasonable’ level Congress sought and it isn’t proportional to banks’ falling costs. The Fed needs to meet that goal, and particularly needs to consider that a larger share of fraud costs has shifted from banks to merchants since the cap was established. Main Street merchants and American families have paid billions of dollars too much and want the Fed to do what Congress intended a dozen years ago.”
Debit card swipe fees cost merchants and their customers $34.4 billion in 2022, a 5% increase from 2021, according to the Nilson Report. When all types and brands of cards are included, credit and debit card swipe fees came to $160.7 billion in 2022, having more than doubled over the previous decade. The fees are most merchants’ highest operating cost after labor, driving up consumer prices and amounting to more than $1,000 a year for the average family.