Merchants Say Allowing More Banks to Price-Fix Debit Card Swipe Fees Would Cost Consumers Billions

Contact: J. Craig Shearman
(202) 257-3678

WASHINGTON, May 15, 2024 – The Merchants Payments Coalition today called on the House Financial Services Committee to reject a legislative proposal that would allow scores of large banks to price-fix their debit card swipe fees, saying the move could cost consumers as much as $5 billion.

“H.R. 8337 would reward price-fixing, expand bank profit margins that already average 500 percent, and stick Main Street and consumers with $4-5 billion in increased prices,” MPC said. “It would drive inflation up at exactly the wrong time.”

The comments came in a letter to the committee, which is set to vote Thursday on the Bank Resilience and Regulatory Improvement Act, sponsored by Financial Institutions and Monetary Policy Subcommittee Chairman member Representative Andy Barr, R-Ky. The letter was signed by MPC and 216 state, regional and national trade associations representing retailers, restaurants, supermarkets, convenience stores, gasoline stations and other merchants in every state.

Under regulations established in 2011, banks that engage in centralized price-fixing of swipe fees and have over $10 billion in assets are allowed to charge merchants no more than 21 cents per debit card transaction plus 1 cent for fraud prevention and 0.05 percent of the transaction amount for fraud loss recovery. A key portion of Barr’s bill would increase the threshold to $50 billion, allowing more than 90 additional banks to freely engage in price-fixing without any limitations.

Raising the threshold would exempt more than two-thirds of the banks currently covered by the regulations, reducing the number from 134 to just 41, based on the Federal Reserve’s list of the nation’s largest banks. Doing so would result in an additional $4 billion to $5 billion in debit card swipe fee charges to merchants each year, according to an MPC economic analysis.

“There is no justifiable need to change the asset threshold … and there are several compelling reasons not to do it,” the MPC letter said.

To start, the regulation applies only to banks that follow swipe fee rates centrally set by Visa and Mastercard while any bank that sets its own rates is free to charge as much as it likes. In addition, swipe fees banks charge merchants to process transactions are nearly as large as retailers’ entire net profit margins, meaning retail prices must rise to make up for any increases in the fees “or Main Street businesses will go bankrupt.” Exempting more banks would “dramatically” increase swipe fees paid by merchants “and ultimately consumers” even though banks’ costs would remain the same.

With banks’ cost of processing a debit transaction averaging 3.9 cents, the total 23-24 cents received for the typical transaction is “generous” and amounts to a profit margin of 500 percent, the letter said. Bankers “should be ashamed of complaining that 500 percent profits are not enough when retailers’ average profits are 3 percent,” MPC said.

“H.R. 8337 would exacerbate inflation at the checkout counter and at the gas pump,” MPC said. “This (bill) would produce an enormous windfall for several dozen banks while burdening all merchants and consumers with higher costs and prices.”

The increased swipe fees would come on top of the $36.3 billion that debit card swipe fees cost merchants and their customers last year. Credit and debit card swipe fees together totaled a record $172.05 billion in 2023 and have more than doubled over the past 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.

The Barr legislation comes as the Federal Reserve is considering an update that would lower the per-transaction amount to 14.4 cents and the amount for fraud loss to 0.04 percent but increase the amount for fraud prevention to 1.3 cents. The updated regulations, which are intended to address banks’ falling cost of processing transactions, would still apply to banks with at least $10 billion in assets.

MPC filed comments with the Fed last week saying the reduction is welcome but doesn’t go far enough because it would reduce the amount banks are allowed to charge by less than a third while their costs have fallen by half since the current rate was set.

The current 21-cent rate cut the average debit card swipe fee by about half. Merchants have saved an estimated $9 billion a year and studies show about 70 percent of the savings has been shared directly with consumers, largely by holding down price increases, with the rest going mostly to increase jobs and employee compensation.

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.