NRF: Fed's Proposed Debit Card Fee Cap Too High

While the National Retail Federation welcomes the Federal Reserve's plan to lower a 13-year-old cap on debit card “swipe” fees, it contends that a proposed change in methodology would leave the cap too high.

“We are very appreciative that the board has undertaken to update the interchange rate so that it will no longer depend on data that is now 15 years old,” NRF chief administrative officer and general counsel Stephanie Martz said in a letter to the Fed. “The economic factors that were considered by the Board when it originally set the maximum allowable interchange rate for covered issuers in 2011 based on 2009 data have changed dramatically.”

A current cap of 21 cents per transaction was established in 2011. The ruling was met positively, as it cut typical debit swipe fees in half and saved retailers an estimated $9 billion a year, said the NRF. However, debit and credit card swipe fees hit a record $172.05 billion in 2023, driving up prices paid by consumers by more than $1,100 a year for the average family.

When set, the current cap was 2.7 times card-issuing banks’ average cost of 7.7 cents for processing payment and was meant to cover actual costs at 80 percent of institutions.

The Fed’s current proposal would lower the cap to 14.4 cents to reflect Fed research showing banks’ average cost had fallen to 3.9 cents as of 2021. But that works out to 3.7 times banks’ average cost and was determined by a new methodology intended to ensure that actual costs cover 98.5 percent of banks, according to NRF.

Rather than reducing banks’ profits on debit card swipe fees, “the largest issuers in the country are further guaranteed a higher profit margin,” Martz said. “If the existing methodology reflects a ‘reasonable and proportional’ interchange fee as the Board has advocated for years, the new methodology does not.”

Martz said the Fed should keep the cap at 2.7 times banks’ average cost, which would result in a limit of 10.5 cents per transaction. Alternatively, the Fed could set tiered rates based on banks’ debit card transaction volume.