FOR IMMEDIATE RELEASE
Contact: J. Craig Shearman
(202) 257-3678 craig@shearmancommunications.com
WASHINGTON, December 23, 2024 – The Merchants Payments Coalition today urged the Federal Reserve to reject a request by the American Bankers Association to withdraw or delay action on the Fed’s proposal to reduce how much big banks are allowed to charge merchants to process debit card transactions. MPC encouraged the Fed to quickly finalize the proposal instead.
“We urge the Board to reject the ABA’s request for further delay in the finalization of the Board’s necessary and long-overdue Reg. II updates,” MPC said in a letter to Fed Board of Governors Chairman Jerome Powell, calling the request “a transparent effort.”
“The banking industry wants to extend for as long as possible the status quo in which covered debit card issuers are able to have Visa and Mastercard fix interchange rates on their behalf at lucrative levels that exceed the reasonable and proportional standard Congress established,” MPC said. “Each day of delay means another day of excessively high fees that accrue to the ABA’s larger members and that are borne by Main Street merchants and their customers. It is long past time for the Board to take action to rein in these inflationary fees by updating Reg. II. We urge the Board to finalize its proposed revisions to Reg. II without further delay.”
In a December 12 letter to Powell, the ABA asked that the Fed’s proposal to reduce the regulated rate for debit card “swipe” fees be delayed or withdrawn.
MPC said the ABA letter came “a full seven months” after the May deadline for comments on the proposal, and that the deadline had already been extended from February at banks’ request. The ABA letter reiterates its May comments and “provides no information that the Board has not already had in its possession.”
“It is perhaps revealing that the ABA sent this correspondence several weeks after the CEO of the ABA’s largest member spoke at the ABA annual convention” and said it is “time to fight back,” MPC said, referring to an appearance by JPMorgan Chase CEO Jamie Dimon. If the letter was prompted by Dimon’s remarks, “It should prompt renewed focus on how the ABA’s advocacy prioritizes the interests of its largest members over the interests of smaller ABA members, who are exempted from Reg. II fee regulation and who under Reg. II have gained debit market share from their giant competitors.”
In addition to its “problematic context and procedural posture,” the ABA letter “should raise eyebrows” because of “unreliable” claims of widespread opposition among other groups that filed comments, MPC said. The Fed should “rely on its own independent judgment in evaluating submitted comments and not the ABA’s characterization.”
The Fed should also “see through the ABA’s myths” because “there no credible evidence” that lower swipe fees lead to reduced bank services for low- and moderate-income consumers, MPC said.
Under regulations established in 2011, banks that have at least $10 billion in assets and follow rates centrally set by Visa and Mastercard can charge merchants swipe fees of no more than 21 cents per debit card transaction plus 1 cent for fraud prevention and 0.05% of the transaction amount for fraud loss recovery. The Fed proposal released in 2023 would lower the base amount to 14.4 cents and the amount for fraud loss to 0.04% but would increase the amount for fraud prevention to 1.3 cents. Going forward, the rate would be automatically updated every other year based on banks’ costs.
While merchants don’t want action on the proposal delayed, MPC said in May that it doesn’t go far enough. That’s because it would lower the amount banks can charge by less than a third even though banks’ average cost of processing a transaction has fallen by nearly 50% – from 7.7 cents before the current rate was set to 3.9 cents as of 2021.
The swipe fee regulation and a provision letting merchants choose which networks process debit transactions have saved an estimated $9 billion a year. Studies show about 70% of the savings has been shared with consumers, largely by holding down price increases. Nonetheless, the savings could have been higher had the Fed set a lower rate or adjusted rates to follow banks’ falling costs.
Debit card swipe fees cost merchants and their customers $36.3 billion last year, according to the Nilson Report. When credit cards are included, swipe fees totaled $172 billion in 2023 and have more than doubled over the previous decade. The fees are most merchants’ highest operating cost after labor, driving up consumer prices by over $1,100 a year for the average family.
About MPC
The Merchants Payments Coalition represents retailers, supermarkets, convenience stores, gasoline stations, online merchants and others fighting for a more competitive and transparent card system that is fair to consumers and merchants. Follow MPC on Twitter, Facebook or LinkedIn for the latest on swipe fees.
