RILA Calls for Action on the Fed’s Debit Cap As Powell Testifies Before Congress

Federal Reserve Board chairman Jerome Powell is testifying before Congress this week, and mixed in with questions and answers about interest rates, economic growth, and employment could be queries about when the Fed is going to update its cap on the fees issuers can charge for debit card transactions.

At least, that’s the hope of the Retail Industry Leaders Association, a Washington, D.C.-based trade group that issued a broadside on Tuesday against what it and most major retailers regard as debit fees out of proportion to banks’ costs to process transactions.

“[O]ne of the issues the chairman and the overall Federal Reserve Board should be pressed on is their complete failure to update the bipartisan debit reforms that were passed under Dodd-Frank over a decade ago,” said Austen Jensen, senior vice president for government affairs at RILA, which has long advocated for lower card-acceptance costs. “During this time, the Federal Reserve has chosen to prioritize policy revisions that benefit Wall Street banks over Main Street businesses and leading retailers. This can simply no longer stand.” 

RILA released Jensen’s remarks Tuesday as Powell was preparing to testify before the House Financial Services Committee. He will speak Wednesday before the Senate.

For nearly a decade, the Durbin Amendment to the Dodd-Frank Act has capped debit card transaction fees to merchants at 21 cents, with an additional though small allowance for certain fraud costs. Now, merchants say an update is long past due as issuers’ costs have plunged over the years. The biggest banks, according to RILA, have experienced a drop from 7 cents per transaction to 3 cents in the years since 2009. Yet the Fed, which the amendment charged with revising the fee cap over time, hasn’t acted. “[T]he Federal Reserve has been reluctant to address this drastic disparity,” RILA charges.

Other merchant advocates support RILA’s position. Mark Horwedel, a consultant to Atlanta-based research firm CMSPi, says the drop in issuers’ debit costs presents “clear evidence that debit interchange rates need to be drastically reduced.” He adds the Fed has a “responsibility to lower debit interchange.” Horwedel formerly was head of the Merchant Advisory Group, a Minneapolis-based advocacy organization whose members include major retail chains and airlines.

The Electronic Payments Coalition, which advocates on behalf of financial institutions on card transaction fees and other payments issues, argues merchants receive benefits from debit and credit card acceptance that exceeds what they pay for in fees.

Moreover, Jeff Tassey, the Washington, D.C.-based EPC’s chairman, contends the Durbin cap harms financial institutions. “The Durbin Amendment required the Federal Reserve to set an interchange cap that is ‘reasonable and proportional’ to the costs incurred by issuers with respect to debit card transactions, and in doing so, developed an artificially low measure of authorization, clearance, and settlement costs, which, while unfair to all financial institutions, is particularly punishing to community financial institutions,” he says in a statement to Digital Transactions News.

In the statement from RILA, Jensen said the association hopes lawmakers will confront Powell with questions about the debit cap and “encourage immediate action by the Federal Reserve granted to them by Congress to set a true rate that reflects the actual costs to handle debit transactions for all retailers.”