President Signs Financial Bill, Enacts Swipe Fee Reform

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President Obama signed into law last Wednesday the financial services reform package that contains provisions to alleviate debit card swipe fees charged to retailers. The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions known as the Durbin Amendment that provide credit card fee relief to retailers and consumers while promoting increased competition within the credit card industry.

The Federal Reserve must now issue rules within nine months for debit interchange fees, also known as swipe fees, that are reasonable and proportional to the processing costs incurred. Swipe fees are a percentage of each transaction that Visa and MasterCard and their member banks collect from retailers every time a credit or debit card is used.

These fees average about 2 percent in the United States and cost American consumers more than $48 billion in 2008, according to the National Association of Convenience Stores (NACS). Interchange fees are the second largest expense item for convenience and petroleum retailers, trailing only labor costs.

Once new standards are established, fees must be adjusted within 90 days, according to a NACS report.

In addition, the Federal Reserve also will issue new rules preventing card networks from requiring their debit cards be used on one debit card network. Going forward, retailers will have a choice of at least two networks to run debit transactions.

Retailers can immediately set a minimum transaction level (not to exceed $10) for credit card transactions, NACS reported. In addition, retailers can now offer discounts to consumers who choose to pay with cash, check or a debit card.

“The war on interchange fees is far from over,” warned Hank Armour, NACS president and CEO, in the association’s report. “We must engage with the Federal Reserve over the next nine months to ensure that appropriate standards are issued, and we must continue our battle to reduce interchange fees on credit card transactions.”

NACS has posted information that answers frequently asked questions regarding the new legislation. The FAQ can be accessed here.

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