May 20, 2010
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News: Retailers Brace For A Victory
It could be a win for retailers who are looking for Congress to vote in their favor to give some relief on excessive debit and credit card transaction costs known as interchange fees. Lawmakers are currently debating the Wall Street reform bill which is expected to be passed any day now and attached to it will be the debit card transaction fee amendment. The Senate voted in favor of the amendment that will limit major debit and credit card networks' abilities to impose excessive interchange fees on debit card transactions. The fee typically cost retailers between 1 percent and 3 percent and is said to be the second highest cost item on their profit and loss statements. Retailers have not only been protesting the excessive costs of the fees but say they have been deliberately removed from the negotiating table by the large credit card networks like MasterCard and Visa.
If passed, the amendment would be a major victory for retailers; however, it does not go far enough. It begins by requiring that debit card transaction fees be "reasonable and proportional" to the network's and issuer's actual costs. Furthermore, the Federal Reserve agency will regulate debit card interchange fees and determine what will be considered reasonable. The amendment falls short by not including credit card transaction fees. Meanwhile, some credit card networks have voluntarily reduced the rate of debit card interchange fees. Visa Europe leads the way by reducing its rate to 0.2 percent on select debit card purchases. Other counties have taken similar steps by implementing new rules that cap debit card interchange fees. For example, Australian lawmakers recently capped the fee at 0.5 percent.
Retailers will also have more flexibility in promoting special promotions to customers offering discounts to those who pay for purchases with debit cards that carry lower transaction fees. The amendment which was approved by a 64 – 33 vote, received strong backing by Senate Majority Whip Richard Durbin, (D-IL). Although considered a major victory, the amendment doesn't solve all issues associated with interchange fees. For example, the omission of credit cards which also carry excessive transaction fees. The amendment also discriminates against debit cards issued by local community banks and credit unions with assets totaling less than $10 billion.