Try this experiment sometime today. Ask 10 people off the street if they believe that debit interchange fees should stay capped. The answer you’ll likely get back is probably a lot of blank stares.
Apparently, the National Retail Federation (NRF) got a different response when it asked a representative sample of 1,013 U.S. consumers, based on survey results that were released last week. Its study reports that consumers want the cap on “hidden debit card swipe fees” — and the subsequent savings — to stay put.
In fact, almost 90 percent of them, according to the NRF’s survey, said that they would like the Federal Reserve’s swipe fee limit on what can be charged to retailers when making purchases with a debit card to remain in place. Further, 84 percent of consumers surveyed said those same fees should be set competitively, instead of allowing credit card companies to set them.
“The truth is that the debit card swipe fee cap has been a win for consumers, retailers and the nation’s economy by sharply reducing a hidden tax collected by the banks. Repealing it would be a win for no one but the banks,” NRF SVP and General Counsel Mallory Duncan said in a statement. What we also know is that the devil is in the details of survey design, so it’s quite possible that, if a question was presented in a way that said something like, “The Fed ruled on capping the fees that you pay when you use a card at a store, which has helped reduce prices in those stores. Would you want that cap to remain?” we’d even wonder what 11 percent didn’t say yes.
It’s also been proven that the savings to consumers were not all passed back to consumers; a very tiny portion was, so tiny that it is likely imperceptible to the average consumer — a penny here and there.
Pre-2011, debit card interchange fees averaged in the $0.44 range. But merchants had been hoping for a reduction, and the Fed made a preliminary ruling that led them to think they would be reduced. With the final ruling that reduced them to $0.24 — but more than what the merchants had hoped — the merchants claimed that the Fed ignored the letter of the law and filed suit.
A federal judge agreed with the merchants, slammed the Fed for doing the bidding of the banks and ordered the Fed to recalculate the cap in a way that would have made it far lower. Unfortunately, for the merchants, the D.C. Circuit Court of Appeals reversed the judge’s decision and sided with the Fed.
In March, Duncan explained that retailers were calling for the Fed to revisit the debit swipe fee issue and sent a letter to the Federal Reserve Board of Governors noting that the improvements made have still failed to live up to the actual standard set by Congress.
“In most cases, $0.24 per transaction represents a significant savings over the prior noncompetitive pricing,” Duncan said at the time. “However, it is still substantially higher than issuers’ incremental costs.”
This, Duncan noted, has been the case since the reforms were initially enshrined because the rates settled upon were well outside of any reasonable consideration of banks’ costs. The NRF further called out excessive lobbying for the cause of the initial miss in the regulations.
“Federal Reserve staff calculated the average cost at $0.04 per transaction and proposed a cap no higher than $0.12,” the letter stated. “Nonetheless, after heavy lobbying from banks, the Federal Reserve Board of Governors eventually settled on $0.21 plus 0.05 percent of the transaction for fraud recovery and allowed another $0.01 for fraud prevention in most cases.”