Global: Merchants Payments Coalition Pushes for Finalization of Debit Interchange Fee Proposal

The Merchants Payments Coalition (MPC) has called on the Federal Reserve to expedite the finalization of its proposal to reduce the fees that banks charge merchants for processing debit card transactions.

In a letter addressed to Federal Reserve Board of Governors Chairman Jerome H. Powell, the MPC urged swift action following a similar appeal from the American Bankers Association (ABA) to withdraw the proposal. According to a press release dated December 12, the ABA had advocated for maintaining the status quo, which allows Visa and Mastercard to set interchange rates that benefit large banks.

“The banking industry is seeking to extend a system where covered debit card issuers allow Visa and Mastercard to set lucrative interchange rates that surpass the reasonable and proportional standards established by Congress,” the MPC stated in its letter. “Each day of delay perpetuates exorbitantly high fees borne by Main Street merchants and their customers.”

The MPC emphasized that the proposed updates to Regulation II are “long overdue” and should be implemented “without further delay.”

The Federal Reserve’s proposal, unveiled in October 2023, seeks to lower the interchange fee cap from 21 cents to 14.4 cents per transaction. The revisions would also mandate a review of these caps every two years and apply to financial institutions holding assets of $10 billion or more.

Commenting on the proposal at its launch, Vice Chair for Supervision Michael S. Barr noted that “debit cards account for over half of all non-cash payments,” and the Federal Reserve has been tasked with ensuring that fees charged on these transactions are “reasonable and proportional to the costs incurred by the issuer.”

In its December 12 letter, the ABA contended that the proposed fee cap is arbitrary, relying on data from 2021 that was distorted by the economic effects of the pandemic. The ABA argued that the proposal fails to consider allowable costs and the need for cost recovery, could reduce access to affordable banking services for consumers, and may adversely impact community financial institutions.

The debate over debit interchange fees highlights the ongoing tension between financial institutions and merchants over the costs of payment processing—costs that ultimately affect businesses and consumers alike.