NACS Urges the Fed to Reduce Debit Card Swipe Fees

The cost to process a transaction is only about 4 cents.

May 13, 2024

In October, the Federal Reserve released a proposal to lower the amount banks can charge for debit card swipe fees from 21 cents to 14.4 cents per transaction. While it’s a step in the right direction, the rate is still much higher than it should be—data from the Fed shows that the cost to process debit card transactions is only about 4 cents, much below the proposed rate of 14.4 cents.

NACS filed its opinion on the debit card swipe fee proposal Friday, urging the Fed to move forward with the proposal though with a much lower rate closer in line with the transaction fee. There is “no justification” for the interchange fees being as high as 14.4 cents per transaction, said Doug Kantor, general counsel, NACS, writing that lower and more efficient fees would be “beneficial for the economy and would bring regulation into compliance with the terms of the Durbin Amendment.”

Read the whole letter here.

In its filing, NACS wrote:

“The central shortcoming of the Proposed Rule in light of the statutory language of the Durbin Amendment is that the Proposed Rule attempts to ensure that a number of covered debit issuers that have very little debit volume recover all of their costs for their debit transactions. Those low-volume issuers are not significantly engaged in the debit business, do not engage in it efficiently based on their very high costs, and the revenue they would receive or not receive under different formulations of Regulation II are not material to their operations. By covering those high-cost, low-volume issuers at 100% of cost, the Proposed Rule ensures that debit interchange fees are far higher than the reasonable and proportional standard for [94%] of debit transactions.”

Another problem of the proposed rule is its “one uniform rate at a level that excessively overcompensates the high-volume covered issuers who handle the vast majority of debit transactions, while providing full cost recovery to many low-volume, high-cost covered issuers for whom debit transactions are a relatively insignificant part of their business,” said comments filed by the Merchants Payments Coalition (MPC).

“When the rate of return above cost for more than 90% of all debit transactions is on the magnitude of 400%, that is not ‘reasonable and proportional’ under any straightforward reading of those terms,” wrote Kantor in the NACS filing.

The MPC encouraged the proposal review board to implement a base component fee that is reasonable and proportional to cost by establishing “one or more tiers of fee rates that are consistent with rates of return that are reasonable for businesses in a competitive market.”

The Fed will now review comments over the coming months and write a final rule based on the feedback it received. NACS will be monitoring the decision closely and updating members on any new developments and final rulings.