Debit cards, while a seemingly easy source of payment for consumers, can be a costly add-on for merchants due to charges put in place by the debit-card issuers: banks and credit unions.
Although a hindrance for some merchants, banks and credit unions view these charges as an important part of their business model. Currently, there are heated debates among lawmakers and bankers alike about the pros and cons of debit card fee limits, especially for smaller banks and credit unions. A new provision recently proposed in the Dodd-Frank legislature suggested capping “swipe fees,” but that financial institutions with less than $10 billion in assets would be exempt. Call it the “small-bank exemption.”
In December, the Federal Reserve issued a draft rule capping fees that banks charge at 12 cents per transactions, which is much lower than the average 44 cents banks currently charge. Banks argue that the significant drop in transaction fee will not cover what debit cards cost them, which in turn will cause them to charge higher account fees to consumers.
The Wall Street Journal reported on the issue, quoting Federal Reserve Chairman Ben Bernanke, “there are two reasons why the small-bank exemption may not work. Merchants may choose to refuse to accept higher-fee cards from smaller banks. Or, payment networks such as those run by Visa Inc. and MasterCard Inc. may decide that it doesn’t make financial sense for them to have a two-tier system.”
So what are outside credit card companies and merchants saying? As noted by the Journal, “The National Retail Federation, which backs the provision, said the rules imposed by Visa and MasterCard bar them from picking and choosing which cards they accept based on issuer. Critics of the rule contend that there’s no way to police what each individual small-business owner does.”
What do you think about the small-bank exemption? Let us know in the comments section below.