CHICAGO -- The National Automatic Merchandising Association reports that it is evaluating the possible impact of an amendment attaching new federal powers of debit card fee regulation to legislation now being considered by the U.S. Senate. The amendment -- #3989 to S.3217 (the Restoring Financial Stability Act of 2010) -- was introduced by Sen. Richard Durbin (D-IL) and passed the Senate on May 13. See story.
"This amendment, if signed into law, will impact cashless transactions and will change interchange fees charged to merchants when they accept debit cards," said NAMA senior vice-president of government affairs Ned Monroe, who is based in Herndon, VA.
"Credit and debit card interchange fees ('swipe fees') are a percentage of each transaction that Visa and MasterCard and their member banks collect from retailers every time a credit or debit card is used," Monroe explained. "The Durbin amendment would direct the Federal Reserve to issue rules to ensure that debit swipe fees are 'reasonable and proportional' to the processing costs incurred."
There is a cost of accepting debit cards, Monroe pointed out, and the banks have moved to recover those costs. "Visa and MasterCard currently charge debit swipe fees of around 1% to 2% of the transaction amount. Some suspect that these fees exceed actual costs."
Debit card transactions draw on the cardholder's bank account; payment is immediate and no credit is extended. "When customers pay with their debit cards, there is no risk of nonpayment, and when a customer enters a PIN (personal identification number) there is almost no risk of fraud," Monroe noted. "The Food Marketing Institute suggests that fraud is equal to roughly one basis point (0.01%) on every dollar spent."
The Durbin amendment's "reasonable fee" requirement only applies to debit cards, and the Federal Reserve would not set interchange fee rates, the NAMA executive observed -- it simply would ensure that the fees are "reasonable and proportional."
The Durbin amendment also would allow merchants to offer discounts to customers who use competing card networks or other payment methods. "So our operators could be allowed to discount less expensive forms of payment ... and discounting for lower cost payment card networks (i.e. Discover)", Monroe said. "Obviously this would be great news to our operators. And the amendment would allow merchants to set minimum purchase levels for transactions which use credit cards, since less expensive purchases may cost too much in fees to justify the transaction."
On balance, the NAMA government affairs official summed up, "The passage of this amendment is a positive. However, this is just one part of the financial reform legislation currently moving through Congress."
The U.S. Senate will continue debate, which includes consideration of 100 additional amendments. "There is an amendment pending which would limit ATM transaction fees to 50¢ per withdrawal," the NAMA government affairs expert instanced. "Then the entire bill must be voted upon by the Senate. If it passes, which appears likely, it will then be reconciled with House legislation (HR 4173), which passed the House late last year."
Monroe reported that the House legislation did not include reform of interchange fees, so the both houses will have to reach agreement on this issue. "Once the two chambers have combined the two bills, both the House and Senate will again vote on the final package before sending it to the President," he noted.
NAMA is working with it coalition partners on this legislation, Monroe assured association members.