Visa, Mastercard Face Lower Cap on Swipe Fees Under Fed Plan (2)

Visa Inc. and Mastercard Inc. are facing a new round of regulatory challenges, with the Federal Reserve proposing lower caps on the fees banks and payment companies can charge merchants when consumers swipe their debit cards at checkout.

The cap on those fees would be cut about 28% to 14.4 cents per transaction plus 0.04% of the transaction amount under a plan that the Federal Reserve’s board of governors proposed Wednesday. The current limit is 21 cents per transaction plus 0.05%, a maximum set more than a decade ago. The fraud-prevention adjustment would increase to 1.3 cents from 1 cent under the changes, which are subject to a 90-day public comment period.

Shares of Visa and Mastercard both dropped on the news. San Francisco-based Visa recovered and was up 0.8% at 2:25 p.m. in New York, while Purchase, New York-based Mastercard was down 0.3%.

A sticker for American Express, Mastercard, Visa and Discover cards displayed at a business in New York on Oct. 17.

Photographer: Angus Mordant/Bloomberg

A Mastercard representative had no immediate comment on the proposal, and Visa didn’t immediately respond to a request for comment.

Interchange or swipe fees for debit and credit cards have become increasingly contentious in recent years, pitting payment firms against merchants, who argue the fees harm consumers. While Visa and Mastercard set the rates for those fees, it’s the banks that issue the cards that keep most of the cost.

“Retailers welcome the Fed’s action’s today in proposing to lower the interchange rate on debit transactions,” the Retail Industry Leaders Association, a trade group, said in a statement Wednesday. “As the rule-making process unfolds, the retail industry will continue working with the Fed and will submit comments advocating that the rate should be set even lower.”

The 2010 Dodd-Frank Act limited the amount of interchange fees banks could charge on debit-card transactions. Congress ordered the Fed to cap the fees at a “reasonable and proportional” cost. In 2011 the central bank capped them at their current rate. Banks can charge an additional cent per transaction if they meet certain fraud-prevention standards.

In a memo released Wednesday, Fed staff said the current interchange fee standards may no longer be effective for determining whether or not the the fee received by the debit card issuer is “reasonable and proportional to the cost.” Data collected from large debit-card issuers has shown that debit-card transaction costs for issuers “have changed significantly over time,” according to the memo.

Fed Governor Michelle W. Bowman said she’s not supporting the proposed changes in part because of the burden they could put on a broad range of issuers, including community banks. While the financial system “remains strong and resilient,” Bowman is concerned that the cumulative effect of the rule changes “could pose ongoing risks to the health of certain financial institutions and the overall US banking system,” she said in a statement.

Payment companies are also facing scrutiny over the fees they charge consumers for credit cards. On Wednesday, the Consumer Financial Protection Bureau released a report to Congress showing that credit-card issuers charged consumers more than $25 billion in fees and more than $105 billion in interest in 2022.

(Updates to reflect Fed vote on proposal throughout, share moves in third paragraph and statement from retailers in sixth.)

--With assistance from Jenny Surane.

To contact the reporter on this story:
Shelly Hagan in Dallas at shagan9@bloomberg.net

To contact the editors responsible for this story:
Sally Bakewell at sbakewell1@bloomberg.net

Daniel Taub, Ben Bain

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