Federal Reserve Leaves Durbin Caps Unchanged
The Federal Reserve has declined to change the cap that limits the amount of debit card interchange that large asset debit issuers can make per transaction.
The decision came after a recent Federal Reserve report documented a slip in debit interchange income for community banks and credit unions.
The debit interchange cap for large asset debit issuers was one of the chief regulatory changes mandated by the Durbin Amendment to the most recent financial reform law.
The report, “2011 Interchange Fee Revenue, Covered Issuer Costs, and Covered Issuer and Merchant Fraud Losses Related to Debit Card Transactions,” is the second report the Federal Reserve has issued in compliance with the Electronic Funds Transfer Act.
The document reported the total number of debit card transactions in 2011 along with the interchange they generated and found that small asset debit card issuers, which were supposed to be exempt from the cap, had in fact seen their debit interchange decline on a per transaction basis.
“During this period, 82% of prepaid transactions were exempt from the interchange fee standard. For covered issuers, interchange fees for all transactions averaged 24 cents per transaction, a 52% decrease from the 50-cent average received by covered issuers during the first nine months of 2011,” the Fed reported.
“Over all transactions, exempt issuers received an average interchange fee of 43 cents per transaction, a 4% decline from the 45 cents per transaction average during the first nine months of 2011,” the report said.
This echoes a previous credit union survey, conducted by CUNA, which also reported an interchange decline.
The Electronic Payments Coalition, which opposed the interchange cap from the beginning, hailed the move announced Tuesday.
“The Durbin Amendment was bad policy from day one,” said Trish Wexler, spokeswoman for the Electronic Payments Coalition. “It’s been more than a year, and consumers are still not seeing any of the savings they were promised.
“The Durbin Amendment has harmed consumers by forcing card issuers to eliminate free checking and other consumer benefits to make up for an $8 billion revenue loss," Wexler said. "With today’s announcement, at least the Durbin Amendment wasn’t made any worse than it already is.”
But the Merchant Payments Coalition, interchange cap supporters, were predictably disappointed.
“This report shows that the Fed made a mistake in implementing an effective law. Consumers and merchants should be benefiting more from the reforms," said Jennifer Hatcher, senior vice president, Government and Public Affairs, Food Marketing Institute, a member of the Merchants Payments Coalition.
"No merchants in a competitive marketplace mark up their products and services by 500%. They would be put out of business. It should be the same for banks and credit card companies,” Hatcher said.