Banks hit back at traders over role of inflation in sweep fee debate

Banks are hitting back at retailers on the side that is hurt by inflation – part of their long-running fight over the future of interchange fees.

Under the Durbin Amendment, which was part of the 2010 Dodd-Frank Act, banks and credit unions with less than $10 billion in assets are exempt from a cap on interchange fees for debit cards.

But that asset threshold has never been adjusted for inflation, the Electronic Payments Coalition noted this week. Based on 2011 dollars, the current threshold is now $7.7 billion, according to the group, whose members include both banks and card networks.

The fees that banks with more than $10 billion in assets collect from retailers on debit card transactions have been capped for more than a decade.


“Many credit unions and community banks are now required to meet the swap cap, even though they would have been exempt had the asset limit been adjusted for inflation,” said Jeff Tassey, chairman of the board. administration of the Electronic Payments Coalition, in a press release Wednesday. .

“The artificial cap on trade and the cap not being adjusted for inflation reduce the funds available to smaller financial institutions to provide essential banking services such as card rewards and data security for customers, as well as the risk and fraud protection for merchants,” Tassey added.

Merchants have seized on the highest inflation rate in 40 years to claim that so-called swipe fees on debit and credit card purchases are too high. Since the fees, which retailers pay to banks, are capped based on a percentage of transaction size, they increase as prices rise.

But the Electronic Payments Coalition cites data indicating that the credit card interchange rate, which is not capped by the Durbin Amendment, held steady at 1.8% between 2016 and 2021. Visa and Mastercard have increased a component of these costs. earlier this year.

The debit card interchange rate fell from 0.79% to 0.78% between 2014 and 2019, according to the coalition.

On Thursday, the Independent Community Bankers of America, which represents smaller banks, also voiced support for raising the asset threshold by $10 billion.

“Given the current inflationary environment, smaller financial institutions that weren’t meant to be affected are now subject to these artificial price controls,” said Nick Denning, senior vice president of payments industry relations. for the group’s payment subsidiary, in an e-mail.

“Interchange-related revenue continues to enable community banks to provide essential banking services such as card rewards programs and data security,” Denning said. consumers. »

For their part, traders have argued that the Federal Reserve should lower the maximum prices allowed under the Durbin Amendment, which is named after its legislative sponsor, Sen. Richard Durbin, D-Ill.

Between 2009 and 2019, the cost of processing debit card transactions at banks with more than $10 billion in assets fell by nearly half, according to Fed data.

In recent months, trade groups representing traders have seized on high inflation as an argument for lowering the price cap.

“So you have the problem of retailers having to chase after them,” Doug Kantor, executive committee member of the Merchant Payments Coalition and general counsel for the National Association of Convenience Stores, said in an interview Thursday.
“If they raise prices to cover inflation, they get hit with higher fees, and then they have to raise prices again to cover higher fees,” he said.

Merchants have gained ground on a related issue. Last year, the Fed proposed a new rule that would require banks that issue debit cards to offer a choice of at least two unaffiliated networks through which to route e-commerce transactions, which merchants say further stimulate price competition.

Swipe fees rose 25% year-over-year last year to $137.8 billion, the Merchants Payments Coalition said in its press release.

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