Fed limits debit fees retailers pay

WASHINGTON - The Federal Reserve said Wednesday that banks can only charge retailers 21 cents each time they swipe a debit card.

The board raised the cap from its initial proposal of 12 cents. Banks and big payment processors like Visa and MasterCard convinced the Fed that was too low to cover the cost of handling transactions, maintaining networks and preventing fraud.

Banks currently have no limit and charge an average of 44 cents per swipe.

The Fed voted 4-1 to adopt the rule, which was required under the financial regulatory law enacted last year. Gov. Elizabeth Duke opposed the rule. It takes effect Oct. 1.

It was "one of our most challenging rulemakings" under the financial regulatory law, Fed Chairman Ben Bernanke said Wednesday. He said the Fed will monitor developments in the debit-card market "on an ongoing basis" to gauge whether it's accomplishing the intended goals.

Fed staff said the higher cap reflects a broader range of costs incurred by banks that issue debt cards. The rule will also allow banks to charge a fraction more to cover the costs of fraud prevention. It does not apply to government-issued debit cards, prepaid cards or cards issued by banks and credit unions with assets under $10 billion.

The move to limit swipe fees pitted the nation's largest banks and payment processors like MasterCard Inc. and Visa Inc. against Walmart and retailers of all sizes.

Banks said roughly $16 billion was at stake if the 12-cent cap took effect. That would be more than 80 percent of the $19.7 billion in debit-transaction fees paid by merchants in 2009, according to the Nilson Report, which tracks the industry.

Associated Press Jun. 30, 2011 12:00 AM


Fed limits debit fees retailers pay