The Fed Takes Aim At 'Swipe Fees'

If approved, 'swipe fees' on debit card transaction would fall by over 25% under the plan.

A young man uses a debit card at an ATM machine
(Image credit: Getty Images)

The Federal Reserve has proposed lowering the maximum fee that large debit card issuers charge merchants for a debit card transaction, a move that would benefit both merchants and consumers.

Under the proposal, the interchange fee cap, or so-called "swipe fees," would decrease from 21 cents to 14.4 cents plus 0.04% of the transaction amount. That would mean, for example, that the maximum fee on an average-sized $50 debit card transaction would decline from 24.5 cents under the current rule to 17.7 cents under the proposal, the Fed said.

Debit cards are the most popular noncash form of payment in the U.S. The Fed said that data it has collected reveals that costs incurred by card issuers in connection with debit card transactions have “changed significantly” since the current caps were put in place.

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Retail is the most competitive industry in the US economy today. The Fed’s proposed revisions lowering the interchange rate for debit transactions will not only benefit every retailer but also customers and employees,” Austen Jensen, executive vice President of government affairs at the Retail Industry Leaders Association, said in a recent statement to Kiplinger. “The entire retail community operates off the slimmest of margins and when there is an opportunity to lower prices or provide additional benefits, merchants seize those moment."

State and federal attention grows

Swipe fees on both debit and credit cards have been a hot topic in recent months especially as federal and state lawmakers consider legislation.

In late August, New Jersey passed a law that limits the amount of credit card swipe fees that businesses can pass on to their customers. Weeks before the New Jersey law was passed, a bipartisan U.S. Senate bill aimed at increasing competition to the Visa- and Mastercard-dominated credit card processing network gained momentum with the goal of reducing costs for merchants and consumers.

Many other states have enacted laws restricting or capping swipe fees that can be passed on to customers. These include Connecticut and Massachusetts, which have prohibited businesses from imposing surcharges on customers using credit cards.

The Fed's plan is open for public comment for 90 days after it is published in the Federal Register. To submit comments, visit the Fed's website.

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Joey Solitro

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.