WASHINGTON — The Merchants Payments Coalition here last week said it was considering filing litigation after the Federal Reserve issued a final rule for assessing debit-card interchange fees that was more beneficial to banks than a previously proposed version.
“The most straightforward option we have is to bring litigation, and we are certainly looking very closely at that in the context of this rule,” said Doug Kantor, counsel to the MPC, which includes several retail groups that have been lobbying for card-fee reform for years.
The Fed's final rule caps debit-card fees at 21 cents per transaction, plus 0.05% of the transaction value to cover fraud-prevention fees. An additional penny could be assessed if issuers meet certain fraud-prevention criteria, for a total of up to about 24 cents per transaction. That nearly doubles the rate that the Fed had previously proposed.
The Fed's previous proposal called for a 12-cent cap on fees, an option that had been supported by retailers but vehemently opposed by the banking and financial services industry. In explaining the final rule in a webcast last week, the board of the Federal Reserve said it received more than 11,000 comments on its original proposal.
In a press conference the next day, Kantor said the Fed appeared to have been swayed by lobbying on behalf of card issuers to include more costs in their calculations than they had in drafting the preliminary rule, which was issued last December.
The Fed was required to issue regulation on debit-card interchange fees by the Dodd-Frank Wall Street Reform and Consumer Protection Act that passed last year. According to the MPC, the Fed did not fulfill its obligation to consider fees that were “reasonable and proportional” to banks' costs when it issued the final rule last week.
The Fed previously had said it calculated a cost to card issuers of 4 cents per transaction, and the MPC said its own calculations showed those costs to be 1 cent per transaction.
“The Federal Reserve very clearly did not follow through on the intent of the law,” said Mallory Duncan, chairman of the MPC.
In an interview with SN, Jennifer Hatcher, senior vice president, government and public affairs, Food Marketing Institute, Arlington, Va., said many supermarkets currently pay PIN-debit interchange fees that are lower that the proposed cap, “and our hope is that those would continue to be well below the cap.”
Retailer groups had previously calculated that the average fee across all retailers and for all forms of payment was 44 cents per transaction, with some transactions, especially those involving PIN debit cards, actually coming in much lower.
Overall, Hatcher said the Fed's final rule was “incredibly disappointing.”
The Fed's final rule also stipulated that each debit card must have the ability to be processed on at least two different networks. However, the rule states that one network can be provided for a PIN-debit transaction and another for a signature-debit transaction.
“We would have preferred having two networks for each option,” Hatcher said.
The new rule would take effect Oct. 1.
Several retail associations issued harshly worded statements decrying the Fed's final rule.
“It's extremely unfortunate that the Federal Reserve ceded to the bank's lobbying to increase the allowable debit swipe fees,” said Peter J. Larkin, president and chief executive officer, National Grocers Association. “Independent grocers and our customers are very disappointed that they will not benefit from the important reforms Congress intended.”