The US Federal Reserve proposes new single cap on interchange fees
The board of the US Federal Reserve has proposed a new cap on the maximum interchange fee a debit card issuer can receive for a transaction.
Federal Reserve proposes interchange fee cap
The proposals specifically seek to determine whether interchange fees for processing a transaction are “reasonable and proportional to certain issuer costs”.
It forms the most significant update to the cap since the Reserve first implemented restrictions on debit card issuers with assets in excess of $10 billion in 2011.
The move would lower the current interchange fee on a $50 purchase, for example, from 0.49% to 0.35%. The Reserve says that this would better reflect the true cost of issuer processing since the rules first took hold through the The Dodd-Frank Act, which itself was a consequence of the 2008 financial crisis to instate higher consumer protections.
The proposal also grants new powers to the Reserve to revise the cap with periodic updates.
While the amendments are poised to benefit both merchants and consumers with lower transactional costs, Reserve board member and governor Michelle Bowman expressed concern around the potential consequences of the revision.
In a statement, Bowman doubts whether the benefit to consumers via lower prices for merchants will be realised, and says that the proposal could ultimately increase the cost for banking products and services.
She describes the use of a single cap and aggregated data reported by issuers as “regressive”, and says that it would disadvantage smaller issuers with smaller transaction volumes and less negotiating power.
“It is possible that banks will be forced to either pass costs through to customers or operate their debit card programmes as a loss leader,” her statement reads.
“Under the proposed rule, nearly one-third of bank issuers would not be able to recover even the subset of costs that factor into the interchange fee cap, let alone those debit card programme costs that are disregarded in the cap.”
Although Bowman says she is looking forward to feedback garnered through the 90-day public comment period, she adds that “I cannot support the proposed revisions to Regulation II’s interchange fee cap and plan for periodic updates”.
