May 02, 2012

U.S. News: Jury out on debit-fee cap

May 3, 2012 – A U.S. News article on the debit interchange fee imposed under the Dodd-Frank Act underscores a reality credit unions and the rest of the credit-card-issuing sector has tried to explain over the past two years: merchants receive a service for the fees they pay, and providing that service costs money.

"The fee pays for convenience," the article says. "[C]ustomers can walk into almost any store, anywhere in the world, and use plastic" to buy goods, and retailers get to offer various payment options. "Those perks require networks that cost money to run," it says.

Who pays the debit fees? The article draws no conclusion but instead presents different sides of the debate. In Australia, it notes, it was impossible to show whether a fee cap there affected consumer prices because the prices depend on many factors. A study funded by MasterCard, however, found that fees on credit cards rose 22 percent for standard cards and 47-77 percent on rewards cards after debit interchange fees were capped.

The article also points to the work of the Electronic Payments Coalition. The coalition has calculated that the retail industry received an $8 billion "windfall" under the fee cap, yet retailers have yet to pass on those savings to their customers. NAFCU is an EPC member.

The Federal Reserve set a debit interchange fee cap that took effect last October, and all institutions targeted in that rule – those with more than $10 billion in assets – have halved their debit interchange fees, on average.

While smaller institutions, including credit unions, are exempt from the fee cap, their fees also declined somewhat in the first three months of the cap's implementation. NAFCU has warned that trend is likely to continue as market expectations demand it.