Congress Takes Final Swipe at Swipe Fees

On Monday, June 21, the Senate and House came to a compromise over one hotly contested portion of the finance reform bill. Members of both houses announced yesterday an agreement to include, in the final version of the bill, limits on the fees that banks can charge merchants when their customers complete a debit card transaction. These inter-change fees or "swipe fees" are a major cost for the nation's merchants, from Walmart, to the corner Mom & Pop grocery.

According to the Associated Press report, these fees require merchants to pay about 1 to 2 percent of each debit card transaction (far more than the fee on a paper check). The money then goes to Visa, Mastercard and the banks, with the banks receiving the lion's share. Under the proposed compromise, the fees will now be limited to what will be termed "reasonable and proportional" to the cost to the banks. The Federal Reserve will be charged with deciding what exactly "reasonable and proportional" means.

In its report, The Wall Street Journal writes that retailers stand to save billions from the new proposed limits. Currently, U. S. merchants pay about $20 billion a year in debit-card fees. Some retailers say that they will pass these new savings on to the customer. Home Depot, among those lobbying most strongly for the cuts, said: "Any relief as it pertains to these fees will give the Home Depot the ability to reduce our cost of doing business ... Such benefits are likely to include lower prices and investment in the business to better serve customers."

Banks, of course are bitterly opposed to the limits. "We continue to have concerns that the ultimate outcome of this legislation would be the passing of merchant acceptance costs to consumers at a time when Americans can least afford it," Noah Hanft, general counsel at MasterCard told The Journal.

The new limits on fees will not apply to traditional credit cards, nor would they cover debit cards issued by federal or state governments which use the cards for programs such as unemployment or child support payments, according to the AP.

Related Resources:

• Merchants Win Debit-Card Fee Battle  (Wall Street Journal)
• House, Senate reach tentative deal on debit cards (AP)
• Senate Passes Amendment on Credit Card Swipe Fees (FindLaw's Free Enterprise Blog)
• Soaring Interchange Fees Charged by Credit Card Companies, Targeted by Merchants (FindLaw's Free Enterprise Blog)
• What are debit card payments? (FindLaw)
• Business Organizations Resources (provided by Soden & Steinberger, LLP)
• Legal Advice Prior to Buying a Franchise (provided by Mario L. Herman)