Fed would like to rule in swipe fees on debit card purchases

Capping debit card swipe costs at 12 cents a purchase is a component of a suggestion submitted by the Federal Reserve on Thurs. The Fed is proposing the swipe fee cap along with other curbs on debit card misuse by financial institutions to comply with the financial reform bill. The Federal proposal was welcome media for retailers, however financial institutions whined and stocks for charge card businesses plunged. Article resource – New Fed proposal takes aim at excessive debit card swipe fees by MoneyBlogNewz.

The Fed swipe limit proposal

Under the current system of debit card swipe fees, credit card companies charge retailers 1 to 2 % of the transaction, regardless of the dollar value. The Fed debit card swipe fee proposal also includes giving merchants a choice from at least two independent debit card networks, a move that would create more competition for Visa and Mastercard. The financial reform bill calls for swipe fees for debit cards to be "reasonable and proportional" to how much the bank has to pay for the electronic transfers to happen which is what began the Fed swipe limit proposal. The Fed suggests that banks are likely to have to be more cost efficient. This is what the debit card swipe fee limits would force.

Banks might end up losing billions

About $15 was made in swipe fees by credit card companies. This was in 2009 alone. The proposal by the Fed for a swipe fee limit would be great for retailers. They'd make much more money. Any banks using Visa or Mastercard may lose up to 80 to 90 % in revenue. A JP Morgan Chase analyst told this to Bloomberg. Average debit card swipe fees would go down about 75 percent with the 12 cent swipe fee cap, says UBS Investment Research. Consumers won't be affected by the debit card swipe fee limits though likely, said the Fed. But banks trying to find solutions to make up for their ill-gotten gains could cut back on debit card reward programs and come up with more of the creative solutions to gouge consumers they are known for.

Fed swipe fee limits get response from many

Customers may end up getting discounts with lower costs for merchants, according to the National Retail Federation. The fare share for the benefits they get from the card payment network would be paid by retailers. According to the American Bankers Association, the Fed would stop this from happening. Shortly after the Fed presented the swipe fee proposal Thursday, Visa stock fell 11 percent and Mastercard stock fell 9 percent.

Citations

Washington Post

washingtonpost.com/wp-dyn/content/article/2010/12/16/AR2010121604553.html

Bloomberg

bloomberg.com/news/2010-12-16/federal-reserve-moves-to-reduce-debit-card-fees-visa-mastercard-decline.html

Wall Street Journal

online.wsj.com/article/BT-CO-20101216-713515.html