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Fed Proposes Reduction in Debit Interchange Fee Cap

The Federal Reserve issued a proposal Wednesday to make significant changes to the current debit card interchange cap.

Federal Reserve

The credit union system, including national trade associations, Leagues and credit unions, strongly opposes any changes—legislative or regulatory—to the current interchange system.

The proposal would:

  • Reduce the base component of the interchange fee cap to 14.4 cents (down from the current 21 cents), reduce the ad valorem component to 4.0 basis points (down from the current 5.0 basis points), and increase the fraud-prevention adjustment to 1.3 cents (up from the current one cent).
  • Update all three components of the interchange fee cap (base, ad valorum, and fraud prevention) every other year going forward by directly linking the components to data from the Board’s biennial survey of large debit card issuers starting in 2025, without public comment. 

“We are carefully reviewing the Federal Reserve Board’s proposal and will submit comments based on our evaluation and input from members,” said John Bratskais, President/CEO, MD|DC Credit Union Association. “While financial institutions with less than $10 billion in assets are “exempt” from the debit interchange cap created by the Durbin Amendment, we know that merchants did not pass the savings along to consumers. We are concerned the cap is harmful to credit unions below the $10 billion threshold as a recent study showed credit union interchange revenue decreased by 31% since the first cap was put in place.”

The Fed also released its 2021 survey of covered debit card issuers. However, the data collected does not reflect new regulations applying the debit card routing requirements to card-not-present transactions that took effect this summer.

“The Fed’s proposal is based on data that doesn’t reflect the actual state of covered debit card issuers today and new regulatory requirements that are now in effect,”said CUNA President/CEO Jim Nussle. Combine that with more than a decade’s worth of post-Durbin Amendment data that shows consumers now face higher prices and card issuers have less revenue to cover the expense of debit card processing.”

Federal Reserve Governor Michelle Bowman, who opposed the proposal, shared similar concerns stating: “While the proposal suggests that it could result in benefits to consumers, I am concerned that the costs for consumers—through the form of increased costs for banking products and services—will be real, while the benefits to consumers—such as lower prices at merchants— may not be realized.”

The proposal will be open for comment for 90 days following its publication in the Federal Register. 

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