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Dec
09

Fed Said to Unveil Debit-Card Fee Limits Next Week

WASHINGTON (Reuters) – The Federal Reserve is expected to unveil a proposed rule next week that would limit the transaction fees that banks can charge retailers when a customer uses a debit card, according to two industry sources familiar with the matter.

The rule, mandated by the Dodd-Frank financial reform law enacted in July, is expected to be on the agenda for a December 16 board meeting, according to the sources. Federal Reserve officials have only said publicly that a rule is expected soon.

Banks are eager to learn the details of the proposed rules, which will give them a better idea of how much it will cut into their profits.

It was a hotly contested provision of the new law, and was a win for merchants and retailers who, along with consumer groups, have long sought to curb the fees.

Bank of America said earlier this year that the fee limits could cost it between $1.8 billion to $2.3 billion annually, but some analysts said that estimate is high.

The law requires the Fed to limit these interchange, or swap, fees to a level “reasonable and proportional” to what it costs the bank to process the transaction.

Banks charge the fees each time someone uses a debit card. Card networks like Visa and MasterCard pass the fees on to the banks.

Seeking to blunt the rule’s impact as much as possible, banks have argued in letters to the agency that “reasonable and proportional” can mean charging more than the cost of a transaction. They have said the Fed should take a broad view and include fraud prevention costs.

The National Retail Federation estimates that debit card fees, which are about 1 percent to 2 percent of each transaction, total about $20 billion annually, although the federation notes that it is difficult to get the data needed to make a precise estimate.

(Reporting by Dave Clarke. Editing by Tim Dobbyn and Robert MacMillan)

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