core sector communique

Flawed Federal Reserve Rule Mutes Benefits of Debit Swipe Fee Reform
Reforms take effect October 1

Arlington, VA – Although debit swipe fee reform was greatly weakened by a deeply flawed Federal Reserve implementation rule, the reforms represent a critical step towards fixing a broken market and relieving merchants and consumers of unfair restrictions and excessive fees noted the Retail Industry Leaders Association (RILA).

Swipe fee reform, which was signed into law in July 2010, set out to rein in out of control fees imposed on merchants and customers by Visa, MasterCard and the big banks. These fees, which are centrally set by Visa and MasterCard, have exploded in recent years and cost merchants nearly $20 billion each year and translate to higher prices for shoppers. Reform legislation sponsored by Senator Dick Durbin (D-IL) required that the fees be “reasonable and proportionate” to the actual cost of the transaction.

“As swipe fee reform takes effect, it is important that we recognize the importance of this major step towards fairness and applaud Senator Durbin, Representative Welch, the bipartisan Members of Congress who voted for reform, and the thousands of merchants, small and large, that fought to fix this broken system. For many merchants and consumers, long-awaited relief is finally here,” said RILA President Sandy Kennedy.

While the retail community celebrates these reforms taking effect, it does so recognizing that many issues remain and that because of a deeply flawed Federal Reserve implementation rule, some retailers will actually see their fees increase.

In July the Federal Reserve capped these fees at 24 cents, nearly double what it had proposed seven months before and six times higher than what its own data showed as the actual cost to process a transaction. Recently Visa and MasterCard began alerting card issuing banks that it would treat the Federal Reserve cap as a minimum as well, guaranteeing fee hikes for merchants, such as convenience stores and coffee shops, who process small dollar transactions.

“Unfortunately the Federal Reserve ignored its own data when it finalized implementation rules, weakening the congressionally-approved reforms and giving license to Visa and MasterCard to raise -- not lower -- the fees some merchants face,” said Kennedy. “RILA will continue to fight to fix the broken swipe fee system and bring transparency, competition and relief to all retailers and their customers.”

RILA is the trade association of the world’s largest and most innovative retail companies. RILA members include more than 200 retailers, product manufacturers, and service suppliers, which together account for more than $1.5 trillion in annual sales, millions of American jobs and operate more than 100,000 stores, manufacturing facilities and distribution centers domestically and abroad.