The Federal Reserve Board isn’t really known for being shocking, but banks and retailers were shocked — and fighting mad — when the agency delivered its verdict on the contentious battle over debit interchange fees, capping fees at 21 cents per swipe — roughly half of the 44 cents banks currently collect every time a consumer uses their debit card.
This is a huge increase over the 12 cent-per-transaction cap the Fed initially said it would probably implement back in December, and the final ruling also gives banks another three months — until October — before the cap kicks in. The Fed also built in the chance for banks to collect an incremental additional amount to cover fraud-related expenses. From its statement:
When combined with the maximum permissible interchange fee under the interchange fee standards, a covered issuer eligible for the fraud-prevention adjustment could receive an interchange fee of up to approximately 24 cents for the average debit card transaction, which is valued at $38.
Retail trade groups are already firing away with indignant statements to the media, claiming this ruling is going to place a crushing burden on merchants, especially small mom-and-pop retailers. But while we love our mom-and-pop stores, too, the uncomfortable reality is that nobody was ever able to prove that lowering interchange fees would benefit customers at the cash register. What was clear was that consumers were likely to see their perks and services cut by banks if interchange fees were dropped as drastically as initially proposed.
While the retail camp is already positioning this as a giveaway to big banks, here’s the good thing: Now that banks will make a lot more money than they planned from debit swipe fees, it’ll be tough for them to claim that they have to punish consumers to make up for the shortfall by eliminating debit rewards programs, ratcheting up fees and adding restrictions. In other words, now that the Fed’s nearly doubled banks’ allowance, it’s going to be hard for them to cry poor.