Federal Reserve Says Debit Card Reform Has Helped Small Banks

A new report analyzes swipe fees since the 2011 debit reform regulations.

March 03, 2016

Washington – The Philadelphia Federal Reserve has just released a report that debit card reform has helped small banks. The report analyzed debit card swipe fees since the Federal Reserve’s reform regulations took effect in October 2011.

Philadelphia Fed researchers concluded that large bank swipe fees declined after reform but small bank fees actually had risen.

“Furthermore, after the ceiling was imposed, the volume of transactions conducted with cards issued by exempt banks grew faster than it did for large banks,” according to the Philadelphia Federal Reserve. Banks with less than $10 billion in assets were exempt from debit reforms.

“Banks have been throwing out this smoke screen for years, pretending small institutions would get hurt despite the fact that only about 100 huge banks are subject to the law,” said Mallory Duncan, senior vice president and general counsel of the National Retail Federation and chairman of the Merchants Payments Coalition, which fights for fair fees.

“Now we have proof from the Fed that small banks have actually been helped by debit reform,” Duncan said.

Every time a consumer swipes a debit card to pay for gas or groceries, the bank that issued the card takes a cut of the transaction as a swipe fee. The Dodd-Frank financial reform bill ordered the Federal Reserve to write rules limiting the price-fixing of these debit swipe fees for banks with more than $10 billion in assets. 

Some banks with less than $10 billion in assets (exempt banks) had expressed concerns that they would be negatively impacted by these changes.

The Philadelphia Fed report demonstrates that exempt banks’ concerns are unfounded. The report concluded that “the evidence does not support the claim that competitive forces have effectively imposed the interchange fee ceiling on small banks.”

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