Online retailers stand to win if the Fed lowers debit card fees.
Despite intense pressure from banks, the Federal Reserve says it plans to implement new debit card rules on schedule July 21. Those rules could dramatically reduce the fees online retailers pay when accepting debit cards and save them hundreds of millions of dollars each year.
Federal Reserve chairman Ben Bernanke sent letters to the chairmen of several congressional committees yesterday saying that the Fed would not meet its April 21 deadline for setting new debit card rules, but would have them in place by the July 21 deadline for the rules to take effect.
Bernanke noted that the Fed has received many comments since proposing in December that the interchange fee merchants pay on debit card transactions be capped at 12 cents. That would represent a dramatic reduction in the interchange web retailers pay. Internet Retailer has estimated that e-retailers pay on average $1.22 when a shopper pays with a debit card, and that the Fed’s 12-cent rule could save online retailers $500 million a year in fees they pay the banks that issue debit cards.
The National Retail Federation, a trade association for retailers, welcomed Bernanke’s letter.
“The banking industry and some in Congress want to delay swipe fee reform for as long as two years, but Chairman Bernanke has made it clear that the Fed doesn’t need a delay in implementation,” says NRF senior vice president and general counsel Mallory Duncan. “Congress held seven hearings and ordered two GAO studies of swipe fees before enacting this law last year. Congress has made its decision and should allow the Fed to complete its work. Delay beyond this summer’s deadline would amount to a $1 billion-a-month bailout for big banks.”
Banks have been aggressively lobbying for a delay in the implementation of the new debit card rules. A bill introduced this month by U.S Rep. Shelley Moore Capito, D-WV, chair of the House Financial Institutions and Consumer Credit Subcommittee, would put off the new debit card fees for a year while the issue is given further study. A similar bill in the Senate introduced by Sen. Jon Tester, D-MT, would delay implementation for two years.
The Fed was directed to examine debit card interchange fees by the Durbin amendment to the 2009 Dodd-Frank Wall Street Reform and Consumer Protection Act. Credit card fees were not covered by that amendment.
Debit cards accounted for 29% of consumer online spending in 2010 and credit cards 40%, estimates research and consulting firm Javelin Strategy & Research. The balance of online payments were made with web-based alternatives like PayPal, prepaid cards, store-branded credit cards and gift cards, Javelin says.