NRF Says Swipe Fee Cut Will Save Merchants and Consumers Billions
WASHINGTON, September 30, 2011 – Merchants and their customers will save billions of dollars when new Federal Reserve regulations cutting debit card swipe fees roughly in half take effect this weekend, the National Retail Federation said today.
“Retailers across the nation are developing a wide range of innovative ways to pass these savings along to their customers with lower prices and better value,” NRF Senior Vice President and General Counsel Mallory Duncan said. “Change won’t come overnight, but consumers will definitely benefit. Reducing these fees will put billions of dollars back into the Main Street economy, helping American families stretch their paychecks and ultimately preserving and creating local jobs to keep America on the road to recovery.”
Under Fed regulations made final this summer, the “swipe” fees the nation’s largest banks charge merchants to process debit card purchases will be capped at no more than 21 cents per transaction – plus 0.05 percent of the purchase price and, in most cases, an additional 1 cent for fraud prevention – beginning on Saturday. That compares with 1-2 percent of the transaction – about 44 cents on the average retail purchase but several dollars on bigger-ticket items – under current fees. Debit card swipe fees currently total about $20 billion annually, and analysts have estimated the cap will save merchants and their customers about $7 billion. Small and mid-size financial institutions with less than $10 billion in assets are exempt.
Members of the highly competitive retail industry have considered a wide range of ways to use the savings to increase value for their customers, such as overall lower prices, specific discounts for using debit cards, free or lower-cost delivery on appliances, free alterations on clothing, or hiring additional staff to improve customer service, to name just a few examples. Few have been able to announce specific programs, however, because banks have only belatedly begun to communicate details of their new pricing structure to retailers. Even though the regulations set caps, precise fee schedules will still be up to the card companies and processors.
While the cap will produce considerable savings for retailers and their customers on most purchases, some merchants are upset that fees could actually go up on small-ticket purchases. The cap amounts to 27 cents on a $100 transaction, or about one-sixth the $1.50 collected under the current fee schedule. But the cap comes to 22 cents on a $2 soda or cup of coffee, for example, that currently carries a fee of only 8 cents. The regulations would allow banks to charge less than the cap for small purchases, but recent news reports indicate that Visa and MasterCard banks plan to instead charge the maximum allowed.
“Even as these regulations are about to go into effect, banks are trying to turn what is supposed to be a ceiling on these fees into the floor for small transactions even though those fees were already grossly out of proportion to the amount of the purchase,” Duncan said. “Unfortunately, this is all too typical of what we’ve come to expect from the card companies and their banks.”
A number of banks have also threatened to raise other fees in retaliation for the swipe fee cap, but Duncan criticized their behavior.
“Every time Congress takes a step to protect consumers, the banks use it as an excuse to raise fees,” Duncan said. “We’ve seen it when Congress limited late fees and overdraft fees and now we’re seeing it with swipe fees. Just as merchants and consumers are about to get some relief, they’re doing it again. That doesn’t mean Congress shouldn’t pass consumer protection laws. It speaks more to the nature of the card industry than to whether swipe fee reform should have been passed.”
NRF has fought for debit and credit card swipe fee reform for more than five years, and worked with other merchant groups to convince Congress to include language in last year’s Wall Street reform bill requiring debit fees to be “reasonable and proportional” to banks’ actual costs of processing the transactions. This spring and summer, NRF conducted an intensive 60-day campaign that helped block a last-minute banking industry effort to have lawmakers repeal or delay the requirement.
As the world’s largest retail trade association and the voice of retail worldwide, NRF’s global membership includes retailers of all sizes, formats and channels of distribution as well as chain restaurants and industry partners from the United States and more than 45 countries abroad. In the United States, NRF represents an industry that includes more than 3.6 million establishments and which directly and indirectly accounts for 42 million jobs – one in four U.S. jobs. The total U.S. GDP impact of retail is $2.5 trillion annually, and retail is a daily barometer of the health of the nation’s economy. www.nrf.com.