Congress takes a swipe at swipe fees
If you have a debit card, the cost for using it is likely to drop -- for your local merchant.
Wall Street reform is coming -- and a compromise has been reached regarding one of its most hard-fought provisions.
Negotiators from the House and Senate have agreed to allow the Federal Reserve to regulate fees for debit card transactions. The fees, known as "swipe" or interchange fees, are paid by merchants in exchange for accepting debit cards.
Credit card swipe fees will remain unregulated.
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According to Sen. Dick Durbin, D-Ill., almost $50 billion in interchange fees was collected last year from both credit and debit card transactions, with roughly 80% of that money going to the 10 largest banks in the U.S., plus Visa and MasterCard.
According to industry newsletter the Nilson Report, debit fees alone totaled $19.7 billion last year and averaged 1.63% of each sale. Post continues after video.
While Europe and Australia regulate debit and credit card transaction fees, this will mark the first time such oversight will happen in the U.S. However, not all banks are affected. Those with less than $10 billion in assets are excluded.
Since it's likely the Federal Reserve will guide interchange fees down, the big winners in the negotiation are merchants, while the losers are the mega-banks that issue most debit cards. Visa and MasterCard, on the other hand, escaped relatively unscathed: The compromise includes a provision that the Fed can't regulate network fees, which are fees that Visa and MasterCard charge and keep for themselves. The stocks of both companies jumped on the news.
Other parts of the final compromise were't celebrated by consumer advocates. For example, fees on prepaid, reloadable debit cards -- cards often used by the poor, and ones often mentioned as having the highest fees -- are excluded from Fed regulation. Also unregulated will be debit cards used by states and the federal government to provide aid like unemployment insurance and food assistance. You can read a summary of the compromise here (.pdf file).
Rep. Peter Welch, a Democrat from Vermont involved in the negotiations, said, "It preserves key protections for the grocers, retailers and country store owners most affected by out-of-control swipe fees, while addressing legitimate concerns of the industry. I am confident this agreement will be approved by the full committee because every conferee represents small-business owners who are tired of serving as a piggybank for Visa and MasterCard."
While the compromise has yet to be voted on as part of the final bill, it's expected to pass in its current form.
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