Retailers large and small are closer to a years-long goal of lower “interchange fees” – the per-transaction cost charged by banks on the MasterCard and Visa debit cards used by customers.
But under a new compromise, the network card giants got a break by dodging regulation now directed at major banks that issue the debit cards, including Bank of America, JPMorgan Chase, Citigroup and Capital One.
As a result, merchants stand to save billions and possibly pass those savings on to card holders – although there is much uncertainty as to the benefit to consumers.
Shares of MasterCard and Visa rose 4 and 5 percent, respectively, on the news of the “swipe” fee compromise. Their shares had fallen significantly in recent weeks.
A House-Senate panel of lawmakers hatching out a regulatory oversight bill has agreed to include in final reform legislation Sen. Dick Durbin’s amendment creating the first U.S. regulation of interchange fees.
Durbin, D-Illinois, who is assistant Senate majority leader, announced that an agreement has been reached, making “minor, clarifying changes” to the language.
The clarification includes a definition of “interchange transaction fee” to include debit card fees that are established by a payment card network – primarily MasterCard and Visa - and that accrue to either the card-issuing bank or the network itself.
The compromise is considered a win for MasterCard and Visa because it now specifies that the Federal Reserve cannot regulate network fees, but only the debit-card fees that banks charge retailers and merchants. But the Fed would be permitted to make sure that the networks don’t use this exemption to circumvent interchange fee regulation.
“These changes are a different way of accomplishing the same goal of protecting consumers from loopholes which would allow banks to raise fees to cover any loss in interchange revenue,” according to a statement issued by Durbin’s office.
The compromise also exempts federal, state and local government debit and pre-paid cards from interchange regulation.
“We addressed specific concerns of states serving the unemployed and firms serving the unbanked,” Durbin said. “This was a good faith effort with House conferees to face legitimate issues and resolve them fairly without surrendering our goals of bringing fairness to interchange fees and common sense regulation to the credit card industry.”
While proponents and lawmakers say that consumers will see price breaks with the new regulation, it is far from certain. Even the investigative arm of Congress, the Government Accountability Office, could not conclude that consumer savings was a certainty with first-time regulation.
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