NRF: Swipe fees protect consumers

Retail group argues for debit card swipe fee regulations.



The National Retail Federation said Congress should reject a proposal from the head of the House Financial Services Committee to repeal a cap on debit card swipe fees. According to the NRF, the fees have saved consumers billions of dollars over the past five years.



“Repealing this cap would double the fees that banks charge retailers and their customers when they use a debit card to pay for purchases,” NRF senior VP and general counsel Mallory Duncan said. “Doubling swipe fees and driving up prices paid by consumers seems like a strange platform to ask members of Congress to run on during an election year. A vote to repeal the Durbin Amendment is a vote for higher consumer prices and isn’t likely to win many votes in November.”



Duncan went on to call swipe fees a “hidden tax” and say the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which instituted swipe fee limits, ended the days of “price fixing” by banks.



On June 23, Financial Services Committee Chairman Jeb Hensarling (R-Texas) released a draft version of legislation that would repeal the Durbin Amendment cap on debit swipe fees as part of a broader rewrite. Hensarling’s proposal follows standalone legislation to repeal Durbin introduced earlier in June by committee member Rep. Randy Neugebauer (R-Texas).



Prior to passage of the Durbin Amendment as part of Dodd-Frank, banks charged retailers 1-2% of the purchase amount to process debit card transactions. According to the NRF, that amounted to about 45 cents on the typical debit purchases but could come to several dollars on larger purchases.



Durbin required the Federal Reserve to adopt regulations resulting in “reasonable and proportional” debit swipe fees. Under rules that took effect in October 2011, debit swipe was limited to a flat fee of 22 cents per transaction plus 0.05% of the purchase, or just under a quarter in most cases. The cap applies only to the nation’s largest banks, but they issue the majority of debit cards.



Without the cap, the typical debit swipe fee would likely go back to the previous 45 cents if not higher, Duncan said.



In addition to repealing the cap, the Hensarling and Neugebauer proposals would repeal a Durbin provision that lets retailers route debit transactions over payment networks that compete with those owned by the major card companies.



Retailers have passed along the overwhelming majority of the $8.5 billion in annual savings from Durbin to consumers, according to a study conducted by economist Robert Shapiro. At 22 cents, however, the NRF says cap is more than five times banks’ actual cost of processing debit transactions. Earlier this year, the NRF urged the Federal Reserve to set the cap at a lower level. The Fed has estimated banks’ actual cost of processing debit transactions at an average of four cents.



An NRF survey conducted earlier in June found that 89% of consumers responding said the cap should be left in place.