CommunityFDL Main Blog

Federal Reserve Brings Hammer on Credit Card Industry on Swipe Fees

(photo: bitzcelt on Flickr)

The Federal Reserve issued rules that would cut debit fees significantly, fulfilling the promise of Dodd-Frank that these interchange fees would get reduced. This provides a boost to retailers and ultimately consumers and employees, who would see lower prices and reduced pressure to cost-cut. It really impacts the credit card industry, who has been making lots of money off of these debit card fees, even though the transaction for the back costs next to nothing.

Visa Inc. and MasterCard Inc. plunged more than 12 percent in New York trading after the Federal Reserve Board proposed rules that may slash debit-card interchange fees by 90 percent.

The new rules, posted today by the Fed on its website, may aid retailers and cut profit for lenders who reaped about $15 billion from such charges last year. Terms outlined by the Fed include a plan with caps of 12 cents per transaction. The fees currently average about 1 percent.

The result could be an 80 percent to 90 percent drop in the fees that Visa and MasterCard pass on to banks, according to Tien-tsin Huang, an analyst at JPMorgan Chase & Co. Jason Kupferberg, an analyst at UBS AG, said investors had been expecting a 40 percent to 60 percent reduction […]

The industry has escaped attempts to regulate interchange on credit cards, which average about 2 percent per transaction, saying the fees are needed to compensate for the risk of lending money. Debit fees don’t have that problem because cash is immediately deducted from the consumer’s checking account.

These swipe fees were just unnecessarily high. Will credit card lenders try to compensate for that lost income? Probably: maybe debit cards will not be issued free to the consumer, or other fees will rise. But at least the costs will be clearly apparent rather than them sucking $15 billion a year out of the retail sector. There’s just no need to perpetuate what amounts to theft on the part of the banks. If the retail sector can rise with the financial sector falling, that’s a balance I’m willing to support.

Dodd-Frank isn’t close to being perfect, but on some key issues, real advances were made. Swipe fees falls into that category, and the Fed followed the spirit of the legislation in this case, despite furious lobbying from the banking sector.

CommunityThe Bullpen

Federal Reserve Brings Hammer on Credit Card Industry on Swipe Fees

The Federal Reserve issued rules that would cut debit fees significantly, fulfilling the promise of Dodd-Frank that these interchange fees would get reduced. This provides a boost to retailers and ultimately consumers and employees, who would see lower prices and reduced pressure to cost-cut. It really impacts the credit card industry, who has been making lots of money off of these debit card fees, even though the transaction for the back costs next to nothing.

Visa Inc. and MasterCard Inc. plunged more than 12 percent in New York trading after the Federal Reserve Board proposed rules that may slash debit-card interchange fees by 90 percent.

The new rules, posted today by the Fed on its website, may aid retailers and cut profit for lenders who reaped about $15 billion from such charges last year. Terms outlined by the Fed include a plan with caps of 12 cents per transaction. The fees currently average about 1 percent.

The result could be an 80 percent to 90 percent drop in the fees that Visa and MasterCard pass on to banks, according to Tien-tsin Huang, an analyst at JPMorgan Chase & Co. Jason Kupferberg, an analyst at UBS AG, said investors had been expecting a 40 percent to 60 percent reduction […]

The industry has escaped attempts to regulate interchange on credit cards, which average about 2 percent per transaction, saying the fees are needed to compensate for the risk of lending money. Debit fees don’t have that problem because cash is immediately deducted from the consumer’s checking account.

These swipe fees were just unnecessarily high. Will credit card lenders try to compensate for that lost income? Probably: maybe debit cards will not be issued free to the consumer, or other fees will rise. But at least the costs will be clearly apparent rather than them sucking $15 billion a year out of the retail sector. There’s just no need to perpetuate what amounts to theft on the part of the banks. If the retail sector can rise with the financial sector falling, that’s a balance I’m willing to support.

Dodd-Frank isn’t close to being perfect, but on some key issues, real advances were made. Swipe fees falls into that category, and the Fed followed the spirit of the legislation in this case, despite furious lobbying from the banking sector.

Previous post

Is it time for Vegetarians to stop chowing down on Bacon McNuggets?

Next post

Groups Urge Issa to Renew Support for Whistleblower Protection Enhancement Act

David Dayen

David Dayen