Lowering the Rate on Debit
While the convenience store industry supports the Federal Reserve’s proposal to lower the rate on debit swipe fees, the proposed rate did not go far enough.
The Issue
Debit swipe fee reform was passed into law in 2010 with bipartisan support from lawmakers who recognized the need to reign in these outrageous fees for businesses and consumers. Known as the Durbin Amendment, the law required the Federal Reserve (Fed) to limit the amount some issuing banks (those with over $10 billion in assets that allow Visa and Mastercard to set their prices) could charge merchants on debit swipe fees. It also required there be network routing competition with at least two routing options on debit cards.
As part of the law, the Fed’s regulated rate on debit cards was supposed to be “reasonable and proportional” to the cost of processing those transactions. Unfortunately, the Fed set the rate much higher and covered banks can charge retailers swipe fees of no more than 21 cents per debit card transaction plus 1 cent for fraud prevention and 0.05% of the transaction amount for fraud loss recovery.
NACS and other merchant groups petitioned the Fed to lower the regulated rate based on bank data demonstrating the costs to be much lower than what was set.
In the fall of 2023, the Fed published a proposal that would lower the base amount to 14.4 cents and the amount for fraud loss to 0.04%, but would increase the amount for fraud prevention to 1.3 cents. The Fed also proposed that the rate would be automatically updated every other year based on banks’ costs.
Retail Impact
Debit swipe fee reform has saved an estimated $9 billion a year and studies show about 70% of the savings has been shared directly with consumers. Other savings have supported additional jobs and investments in local businesses to better serve their customers.
However, the savings could have been much higher for consumers if the Fed would have adjusted the rate to an amount that is truly “reasonable and proportional” to the banks’ costs.
The banks’ average cost of processing a transaction has fallen from 7.7 cents before the current rate was set to 4.1 cents as of the most recent data available (2023). The Fed’s proposal—at 14 cents—would lower the amount banks can charge by less than a third, when the banks costs have fallen nearly 50%.
NACS Position
While NACS supports the Fed taking action to lower the regulated rate on debit, the Fed should lower the adjusted rate even further to reflect the reality of the banks’ falling costs. NACS filed comments on behalf of the convenience store industry, and continues to press the Fed to finalize a rate that is fair and reflects what the law originally intended.
Doug Kantor
General Counsel
NACS
(703) 518-4228
Doug Kantor joined NACS as its General Counsel in May 2021.
Prior to that, Kantor most recently served as a partner at Steptoe & Johnson LLP. In this role, he worked with a range of clients, including NACS, to address public policy issues ranging from fuels to financial services. Kantor also established and administered coalitions of companies and trade associations that share common legislative and regulatory objectives. During his tenure at Steptoe, Doug also served as counsel to the Merchant Advisory Group, Society of Independent Gasoline Marketers of America, National Grocers Association, National Retail Federation, Merchants Payments Coalition, and Main Street Privacy Coalition, among other groups.
Kantor’s legal experience includes appellate litigation, campaign finance law counseling, privacy law counseling, defending state attorney general investigations, litigating securities enforcement actions, and class litigation.
Prior to Steptoe & Johnson, Kantor practiced at Collier Shannon & Scott PLLC. He also served as Special Counsel & Deputy Chief of Staff at the U.S. Department of Housing and Urban Development. Prior to attending law school, Kantor served as a public school teacher.
Kantor received a B.A. from the University of Virginia and a J.D. from Yale Law School.
