Release Date: December 16, 2010
For immediate release
The Federal Reserve Board on Thursday requested comment on a proposed rule that would establish debit card interchange fee standards and prohibit network exclusivity arrangements and routing restrictions.
The Board's proposal would implement the debit card interchange fee and routing provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Debit card interchange fees are established by payment card networks and paid by merchants to card issuers for each transaction.
The proposed new Regulation II, Debit-Card Interchange Fees and Routing, would establish standards for determining whether a debit card interchange fee received by a card issuer is reasonable and proportional to the cost incurred by the issuer for the transaction. These standards would apply to issuers that, together with their affiliates, have assets of $10 billion or more. Certain government-administered payment programs and reloadable general-use prepaid cards would be exempt from the interchange fee limitations.
The Board is requesting comment on two alternative interchange fee standards that would apply to all covered issuers: one based on each issuer's costs, with a safe harbor (initially set at 7 cents per transaction) and a cap (initially set at 12 cents per transaction); and the other a stand-alone cap (initially set at 12 cents per transaction). Under both alternatives, circumvention or evasion of the interchange fee limitations would be prohibited. The Board also is requesting comment on possible frameworks for an adjustment to the interchange fees to reflect certain issuer costs associated with fraud prevention.
If the Board adopts either of these proposed standards in the final rule, the maximum allowable interchange fee received by covered issuers for debit card transactions would be more than 70 percent lower than the 2009 average, once the new rule takes effect on July 21, 2011.
The proposed rule would also prohibit all issuers and networks from restricting the number of networks over which debit card transactions may be processed. The Board is requesting comment on two alternative approaches: one alternative would require at least two unaffiliated networks per debit card, and the other would require at least two unaffiliated networks per debit card for each type of cardholder authorization method (such as signature or PIN). Under both alternatives, the issuers and networks would be prohibited from inhibiting a merchant's ability to direct the routing of debit card transactions over any network that the issuer enabled to process them.
According to the recently released 2010 Federal Reserve payment study, debit card use in the United States now exceeds all other forms of noncash payments and, by number of payments, represents approximately 35 percent of total noncash payments.
Comments on the proposal are due by February 22, 2011.
Federal Register notice: 636 KB PDF
For some that may look good.
I'm not in a bank, I'm in a credit union. (I've noted before that I am hugely pro-labor and that every adult in my family is a labor union member. That's why I've always been in a credit union and not a bank.) Currently, my fees for my debit card? If I use an ATM that's not the credit union's, I pay a fee ($1.50). I can, however, get cash with no charge by going to the grocery store, purchasing groceries and selecting cash back. So I never pay a fee for getting money out.
If they don't implement this proposal, many people will do what I already do in terms of where we shop. If a store is charging us a fee to use a debit card, we'll find a store that won't.
The radio was talking about how the Feds wanted to end the fees. That's not what they've proposed. They've proposed that the person issuing you the debit card can charge you 7 cents per use of the card. And the place you use it can charge you 12 cents for using it.
But these aren't final numbers and, like the price of stamps, will probably rise quickly. I don't see this helping anyone. I see it as the Feds efforts to ensure that costs are imposed on every transaction in the US. I don't see this as a good thing at all for the consumer.
This is C.I.'s "Iraq snapshot" for Thursday: