Federal Reserve Raises Swipe Fee Cap In Victory For Wall StreetZach Carter - HuffPo
First Posted: 06/29/11 06:36 PM ET Updated: 06/29/11 09:52 PM ET
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WASHINGTON --
The Federal Reserve delivered the punchline Wednesday to the year-long joke that has been the lobbying blitz over debit card swipe fees. Amid heavy Wall Street pressure, the Fed nearly doubled the amount it will allow banks to charge retailers and consumers under a new regulation while effectively exempting an entire class of debit card transactions from the rule altogether.
The swipe fee debate dominated the Senate for months, as nearly the entire U.S. retail industry battled banks in Capitol Hill backrooms. Last year's Wall Street reform bill required the Fed to write a rule capping swipe fees on debit cards, which banks charge retailers for the privilege of accepting plastic.The central bank initially proposed a 12-cent limit on those fees in December, following a Fed survey of banks that found that the median cost of processing a debit card transaction was 7 cents, with an average cost per swipe of 4 cents. The 12-cent cap would have left banks with a profit margin of about 70 percent on debit cards based on the median cost, but represented a reduction of almost 75 percent from the current average swipe fee of 44 cents per transaction.
Wall Street has been pressuring the Fed all year to reconsider the rule, and on Wednesday, that pressure paid off: The central bank raised its proposed cap on swipe fees to 21 cents, plus 0.05 percent of the transaction amount and 1 cent to cover the costs of protecting against fraud. All told, the Fed said it will allow banks to charge a maximum of 24 cents per transaction, on average.
That's actually higher than the current average amount that retailers pay for swipes that require customers to enter a personal identification number -- meaning PIN swipes are effectively exempted from the new rules. According to the Fed's December study, banks charge an average of 56 cents on debit card transactions that require a customer's signature for authorization, compared to 23 cents for the more secure PIN payments.
While the cost per purchase appears small, they add up to billions of dollars every month. According to data from the Nilson Report, an industry publication, banks scored $16 billion in 2009 on debit card swipe fees, with half of the total flowing to just 10 banking behemoths.
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