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The Merchants Payments Coalition fired back late Monday at a request last week from the American Bankers Association that the Federal Reserve not act on a proposal to lower a longstanding limit on the interchange banks can earn on debit card transactions.
In a letter to the Fed, the MPC argues the banking industry wants to extend the “status quo” on debit interchange, which it argues Visa Inc. and Mastercard Inc. set at “lucrative levels that exceed the reasonable and proportional standard Congress established.”
“We urge the Board to reject the ABA’s request for further delay in the finalization of the Board’s necessary and long-overdue Reg. II updates,” the MPC says in its letter to Fed chairman Jerome Powell.
“Each day of delay means another day of excessively high fees that accrue to the ABA’s larger members,” the letter says, adding these fees are borne by “Main Street merchants and their customers.”
The ABA sent its letter to Powell Dec. 12, arguing for a delay in the regulator’s proposed lowering of its debit-interchange cap. That letter came on the heels of an analysis indicating nearly 80% of the more than 400 comments regarding the proposal to lower the cap oppose it.
In response, the MPC says the ABA is making misleading claims. “We know the ABA has hired a lot of groups to lobby against this [proposal], and that suggests they have leverage over them to comment how they want,” says Doug Kantor, an MPC executive committee member and general counsel for the National Association of Convenience Stores.
Merchant groups have long argued the debit rate cap is too high. In May, the MPC said the Fed’s proposed reduction does not go far enough because it would lower the amount banks can charge by less than a third, even though banks’ average cost of processing a debit card transaction has fallen by nearly 50%, from 7.7 cents before the current rate was set to 3.9 cents as of 2021, according to a Federal Reserve report.
“Banks are making more money on debit transactions than they should in a competitive market,” Kantor argues.
The MPC also noted that the ABA’s letter to the Fed came seven months after the regulator’s May 12 deadline for comments on its proposed rate-cap reduction. The ABA letter “provides no information that the Board has not already had in its possession,” the merchant group says.
The Fed originally set a deadline of Feb. 12 for comments.
