Durbin, Local Business Owners Call for Prompt Federal Reserve Action on Swipe Fee Regulations

New regulations will implement reasonable limits on rising fees and protect consumers from big bank price-fixing

[SPRINGFIELD, IL] – In the wake of a Senate vote earlier this week defeating the big banks’ attempt to delay new limitations on the swipe fees that small businesses pay on every debit card sale, U.S. Senator Dick Durbin today called on the Federal Reserve to act quickly to issue the final rules needed in order for the law to take effect and small business owners to begin to get relief.


A Durbin-authored amendment to help reduce the soaring cost of interchange or “swipe” fees was signed into law last year as part of the Wall Street Reform Act. Interchange fees are fixed by card networks on behalf of banks, and allow banks to receive a non-negotiable cut out of the total amount of every sale a business makes by debit card. The fees, which have skyrocketed in recent years and far exceed the actual cost of conducting a transaction, often eat up half – if not more -- of a small merchant’s annual profits.


“Higher interchange fees mean higher costs for retailers and consumers,” Durbin said. “Fee payments are going up every year, and small business owners have no ability to negotiate any change in their amounts. We must implement reform that will make sure that the fees charged to merchants are reasonable and proportional to the actual cost of processing a transaction. If we don’t, consumers and business owners will keep getting shortchanged,” Durbin said.


Durbin’s amendment directed the Federal Reserve to ensure that the debit card interchange fees that Visa and MasterCard fix on behalf of the largest one percent of U.S. banks are “reasonable and proportional” to the costs incurred in processing the transaction. The legislation also stripped anti-competitive provisions from Visa and MasterCard’s contracts to allow merchants to offer discounts for using cash, checks and debit cards as opposed to credit cards. The Federal Reserve is expected to soon finalize the implementation of regulations. The new regulations have faced mounting opposition from the big banks and credit card companies who are seeking to stop this reform.


In the United States debit interchange fees average 1.14 percent of the transaction amount, whereas in the European Union Visa and MasterCard charge debit interchange fees of 0.2 percent and in Canada debit interchange fees are zero. American consumers, merchants, small businesses, charities, universities and government agencies pay approximately $16 billion per year—over $1.3 billion per month—in debit interchange fees, more than half of which goes to the largest ten banks. To make up for the interchange fees, businesses often either raise their retail prices or cut back on other expenses, like hiring.


“The setting of non-negotiable rates by giant card companies on behalf of the nation’s biggest banks not only represents a failure of the market, it pinches the pocketbook of every American,” Durbin said. “These interchange fees have real life consequences, which is why reform is so important. I’m standing on the side of small business owners and merchants who deserve a debit card system that works for them and their customers, not just for the big banks and card companies,” Durbin said.