Fed Proposes Cap on Debit Card Swipe Fees

Washington, DC, Dec. 17, 2010 -- The Federal Reserve has proposed a 12-cent cap on the fees banks would be allowed to charge merchants for debit card transactions.

Some analysts estimate the limit could cut up to 90 percent of the revenue collected through such fees.

Capping debit interchange fees, also known as swipe fees, could help merchants. The Fed said the average fee in 2009 was $0.44 per transaction, or 1.14 percent of the transaction.

When the customer signed for the purchase in the same way they would for a credit card purchase, known as signature debit, the average fee was $0.56, or 1.53 percent of the transaction amount.

The proposal also would require that merchants have a choice of unrelated networks to process transactions, like Visa and MasterCard. That could cut into revenue for those companies by allowing other networks to process transactions now handled by the two biggest players in the industry.

The limit would not apply to interchange fees for credit cards.

The National Retail Federation was among merchant groups that praised the proposal, saying fee limits "would result in lower costs for merchants and could lead to discounts for their customers."

However, the American Bankers Association said that the cap would "essentially relieve retailers of paying their fair share" for debit card transactions.