Global: Banking Industry Urges Federal Reserve to Reconsider Debit Interchange Fee Cap Reduction

In addition to the Consumer Financial Protection Bureau (CFPB)’s efforts to limit credit card late fees, banks are closely monitoring the Federal Reserve’s proposed revision to Regulation II, which aims to cap debit interchange fees.

Last October, the Fed introduced a proposal to decrease the maximum amount banks can charge for debit card transactions, commonly known as swipe fees, from 21 cents to 14.4 cents.

With the commentary period ending this Sunday (May 12), numerous banking groups, including the Bank Policy Institute, American Bankers Association, America’s Credit Unions, and Consumer Bankers Association, have submitted their comments to the Fed.

In a collective letter addressed to the Fed, these industry groups have voiced concerns that the proposed measures could negatively impact both banks and their customers.

Economist David Evans, in his analysis titled “The Impact of the U.S. Debit Card Interchange Fee Caps on Consumer Welfare: An Event Study Analysis,” highlighted that banking customers may have incurred losses exceeding $25 billion in discounted value dollars due to interchange fee caps established by the 2010 Durbin Amendment.

The banking industry contends that the proposed fee reductions could hinder their ability to invest in payment innovation, ultimately leading to increased costs for consumers, particularly those with basic deposit accounts. Moreover, the proposal may limit resources available for banks to manage debit card transactions efficiently.

Interchange revenue is instrumental in funding low- or no-cost deposit account programs, such as Bank On-certified accounts. However, the percentage of banks offering free checking accounts declined significantly after the implementation of Regulation II.

Furthermore, the industry groups argue that the proposed reduction in the fee cap primarily considers the costs of high-volume issuers, neglecting the higher operational costs borne by smaller banks and credit unions.

The comments emphasize that debit cards have become a primary payment method for millions of American consumers. Data from PYMNTS Intelligence indicates that paycheck-to-paycheck consumers prefer using debit cards for everyday transactions, with debit spending outpacing credit card spending according to Visa’s latest earnings results.

As the debate continues, the banking industry awaits further developments regarding the Federal Reserve’s proposed changes to debit interchange fees.