Merchants Payments Coalition Urges Fed to Finalize Interchange Fee Proposal

The Merchants Payments Coalition is urging the Federal Reserve to quickly finalize the Fed’s proposal to reduce the fees banks are allowed to charge merchants to process debit card transactions.

The group said this in a letter to Federal Reserve Board of Governors Chairman Jerome H. Powell that it sent in response to a Dec. 12 letter from the American Bankers Association, which urged the Fed to withdraw the proposal, according to a Dec. 12 press release.

“The banking industry wants to extend for as long as possible the status quo in which covered debit card issuers are able to have Visa and Mastercard fix interchange rates on their behalf at lucrative levels that exceed the reasonable and proportional standard Congress established,” the MPC said in its letter. “Each day of delay means another day of excessively high fees that accrue to the ABA’s larger members and that are borne by Main Street merchants and their customers.”

The MPC added in the letter that the MPC’s Reg. II updates are “long overdue” and that they should be finalized “without further delay.”

Under the terms of the Federal Reserve’s proposal, which was unveiled in October 2023, the Fed would lower the interchange fees that are charged to merchants to 14.4 cents, where that rate had been 21 cents. In addition, the caps would be reviewed every two years. The revised fee structure would cover financial institutions with at least $10 billion in assets.

When the Fed voted to move forward with the commentary process at that time, Vice Chair for Supervision Michael S. Barr said that “debit cards accounted for over half of all non-cash payments” and that the Fed had been tasked with examining whether the fees assessed on debit card transactions to merchant banks are “reasonable and proportional to the costs incurred by the issuer.”

The American Bankers Association’s Dec. 12 letter addressed to Powell said the proposed amendments set the cap arbitrarily and are based on 2021 survey data that was skewed by the effects of the pandemic.

It added that the proposed amendments don’t account for allowable costs and the ability to recover costs, harm consumers by reducing access to affordable banking services, and don’t account for their impact on community financial institutions.