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June 09, 2011

  • News:  Merchants Win 1st Battle 

    Merchants in the United States have won a big battle against the debit and credit card networks. Recent legislation known as the Dodd-Frank Wall Street Reform Act contains a provision whereby the Federal Reserve can set limits on debit card interchange fees to what is "reasonable and proportional". Interchange fees are the fees that merchants pay each time a cardholder swipes his debit or credit card. A portion of the fee is paid to the merchant's bank, a portion is paid to the debit or credit cardholder's bank, and a portion is paid to the major card networks such as Visa, MasterCard, American Express and Discover. The legislation which comes into effect on July 21, 2011 is expected to cost the card companies and banks an estimated $16 million in debit card interchange fees.

    Credit card companies and other financial institutions along with some members of the U.S. Senate had attempted to delay the effective date of the legislation by a year. A vote on the postponement was done on Wednesday but failed to produce the necessary 60 votes that would prevent that portion of the Dodd-Frank bill from going into effect on the July 21st date. Although the bill's primary focus is on debit card fees, its enactment could have a major impact on the future of credit card interchange fees that m Merchants, especially the small convenient store chains continue to fight.

    Smaller community banks and credit unions with assets less than $10 billion are exempt from the provision, however, many of them also opposed the measure. They fear is that eventually they may have to lower their fee schedule in order to adequately compete with larger banks and credit card companies that could be limited to the Federal Reserve's proposed 12 cents per transaction. The average interchange fee now costs merchants approximately 44 cents per transaction. Banks are threatening consumers saying that the new legislation will only lead to higher fees and lower rewards. Surprising similar to those threats by card companies prior to the implementation of the CARD Act 2009 which have proven to be unsubstantiated.

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