Swipe Fee Limit Raised, Retailers to Take Hit

The Federal Reserve has agreed to raise swipe fee limits. The debit card fees, or "swipe fees," are charges that banks can collect when a card is swiped.

Last year, the Federal Reserve had proposed that swipe fees should be capped at a maximum of 12 cents. Now, banks will be able to get a fee of 21 cents, reports The Washington Post.

While the new limits are still much lower than the current swipe fee average of 44 cents per swipe, retailers and business are unhappy with the Fed's decision.

After all, it costs the banks around 4 cents per swipe to process the transaction, reports the Washington Times. Where do the rest of the swipe fees go then?

Swipe fees generated around $16.2 billion in 2009 for banks, reports The Washington Post. Banks use the swipe fee income to fund card reward programs and offset the cost of running free checking account programs for customers.

The end result of the Fed's decision seems to be that both retailers and banks are unhappy. Retailers wanted the lower swipe fees, since the swipe fees take away from their bottom line. Banks did not want the restriction on swipe fees, because swipe fees help pad their bottom line.

The swipe fee rules will apply to all banks that have at least $10 billion in assets. Those with less than $10 billion in assets will be exempt from the rules, reports The Daily Caller. The swipe fee caps were passed as part of the Dodd-Frank financial overhaul legislation.

What does this mean for small business owners - specifically, small business retailers? Well, for most, it will be a positive sign for the store's income. The 21-cent a swipe fee limit is still much lower than the current 44-cent average. But, of course, it's not a complete victory for retailers, as 21 cents is also nearly double the original 12-cent cap on debit card fees the Fed had considered earlier.

Related Resources:

• Banks convince Fed to raise swipe fee limit (Washington Post)
• Congress Takes Final Swipe at Swipe Fees (FindLaw's Free Enterprise)
• Senate Passes Amendment on Credit Card Swipe Fees (FindLaw's Free Enterprise)