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Published: Thursday, 6/30/2011 - Updated: 3 years ago

Fed slashes banks' charge to retailers for debit card use

ASSOCIATED PRESS

WASHINGTON -- The Federal Reserve said Wednesday that banks can charge retailers only 21 cents each time they swipe a debit card.

The board raised the cap from an initial proposal of 12 cents per swipe. Banks and big payment processors such as Visa and Mastercard convinced the Fed that would not cover the cost of handling transactions, maintaining networks, and preventing fraud.

Banks currently have no limit and charge about 44 cents per swipe.

The Fed voted 4-1 to adopt the rule, which was required under the financial regulatory law enacted last year. Gov. Elizabeth Duke opposed the rule. It takes effect Oct 1, later than expected.

It was "one of our most challenging rulemakings" under the financial regulatory law, Fed Chairman Ben Bernanke said Wednesday. He said the Fed will monitor developments in the debit card market "on an ongoing basis" to gauge if it's accomplishing the intended goals.

Fed staff said the higher cap reflects a broader range of costs incurred by banks that issue debt cards. The rule will also let banks charge a fraction more to cover the costs of fraud prevention.

It doesn't apply to government-issued debit cards, prepaid cards, or cards from banks and credit unions with assets under $10 billion.

The move to limit swipe fees pitted the nation's largest banks and payment processors such as MasterCard Inc. and Visa Inc. against Wal-Mart and retailers of all sizes. The decision to use a higher cap lifted banks' and payment processors' stocks in trading Wednesday on Wall Street.

Banks said roughly $16 billion was at stake under the 12-cent cap. That would be more than 80 percent of the $19.7 billion in debit transaction fees paid by merchants in 2009, according to the Nilson Report, which tracks the payments industry.



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