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September 18, 2014

Fed: No plans to revise debit fee cap yet

The Federal Reserve Board, pointing to its latest review of interchange fee revenue, issuer costs and fraud losses, yesterday said it does not plan to propose revisions to its Regulation II interchange fee standard.

The Fed is required under the Electronic Funds Transfer Act to publish data biennially on costs incurred and interchange fees charged or received by debit card issuers and payment card networks. It did its first data collection in 2010 and used the data to formulate its current interchange rule. It published a second report in March 2013 and the third one today.

In its recent review, the Fed found that 64 percent of covered issuers (those with $10 billion or more in assets) incur average costs for authorizing, clearing and settling debit card transactions of less than 21 cents plus 5 basis points of transaction value, slightly lower than the 66 percent found in 2011. This includes issuer fraud losses. Covered issuers whose average costs were below the maximum interchange fee in 2013 processed more than 99 percent of reported covered transactions, unchanged from 2011, the Fed said.

This review doesn't address the impact on those issuers – credit unions and other institutions with less than $10 billion in assets – that are "exempt" from the Fed's debit interchange fee limits.

Merchants challenged the Fed regulation, saying the 21 cent fee cap was too high – but lost that challenge on appeal. They have asked for Supreme Court review.

NAFCU maintains that the Fed's debit interchange fee cap is still too low for credit unions to recoup the costs for offering payment services to members.