The Federal Reserve Board of Governors voted Wednesday 6-1 to initiate a rule proposal that would reduce the regulated debit interchange rate and adjust the rate every two years consistent with data. The proposal would also establish a regular process for updating the maximum amount every other year going forward.
The Board also requested comments from the public on the proposal as part of a 90-day comment period.
“The Federal Reserve’s decision today 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. 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,” said FMI President and CEO Leslie G. Sarasin in a statement.
Merchants like grocery stores are required to pay debit interchange fees to process debit card transactions. Last year, the Food Industry Association and the National Association of Convenience Stores filed a joint petition urging the Fed to take action to reduce the regulated rate and have continued to press for this action. Debit card swipe fees cost merchants and customers roughly $33.4 billion in 2022. After labor, these fees can be a merchant’s highest operating cost.
The 2011 law necessitated the Board to set an interchange fee cap for debit card issuers with $10 billion or more in assets. The proposal would adjust the interchange fee cap to reflect the changes in issuer costs that have been implemented since the rule first took effect. This means that the cap on a $50 debit card transaction would decrease from the current 24.5 cents to 17.7 cents.
“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,” said Sarasin.
She asked the Board to go further to protect merchants.
“Simply put, merchants who have installed Visa- and Mastercard-required [peripheral component interconnect] 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.”
Related: Fed to Discuss Debit Card Swiping Fees; Ontario Proposes Price Gouging Protections