WASHINGTON -- The Federal Reserve Board said Tuesday it does not plan to alter rules governing the fees debit-card issuers receive from merchants following a new report that showed sharp declines for most interchange fees, reported Dow Jones.
The Fed published the report containing summary information on the volume and value, fee revenue, certain debit-card issuer costs and fraud losses related to debit-card transactions in 2011.
The portion of the Dodd-Frank financial overhaul--known as the Durbin amendment, named after for Senator Richard Durbin (D.-Ill.)--directed the Fed to limit "swipe" fees. As of Oct. 1 2011, they were capped at about 21 cents a transaction versus a previous average of 44 cents.
The Fed report on the volume and value of swipe fee revenue said that the fees at institutions covered by the rule fell to an average of 24 cents per transaction during the final three months of 2011, a 52% decrease from the 50-cent average during the first nine months of that year.
At banks not covered by the rule, issuers received an average interchange fee of 43 cents per transaction, a 4% decline from the first nine months of 2011.
The regulation does not apply to debit-card issuers with assets less than $10 billion. More than one-third of all debit-card transactions were processed by issuers that were exempt from the interchange fee standard, the Fed said.
Payment card networks processed 46.7 billion debit-card transactions valued at $1.82 trillion in the United States during 2011, the Fed said.
The Fed report is the second in a series to be published every two years under the Electronic Fund Transfer Act (EFTA).
The Board's Regulation II (Debit Card Interchange Fees and Routing), which implements this provision of the EFTA, provides that a debit card issuer subject to the interchange fee standard (a covered issuer) may not receive an interchange fee that exceeds 21 cents plus five basis points multiplied by the value of the transaction, plus a one-cent fraud-prevention adjustment, if eligible.
The Fed estimated debit-card fraud losses to all parties (merchants, cardholders and issuers) to be $1.38 billion in 2011, with an average loss of approximately eight basis points per debit-card transaction, down slightly from 2009. The median covered issuer's average fraud loss per transaction was nearly five basis points, the same as in 2009. The median covered issuer had average fraud prevention and data security costs of slightly less than 1.5 cents per transaction.
The Fed found that 67% of covered issuers had average authorizing, clearing and settling (ACS) costs below 21 cents (the base component of the interchange fee standard) in 2011. This proportion is lower than the 80% of covered issuers with average ACS costs below 21 cents in 2009 due to the addition of first-time survey respondents. Issuers that responded to both the 2009 and 2011 data collections typically reported ACS costs per transaction that were lower in 2011 than in 2009. Covered issuers that had average ACS costs below 21 cents in 2011 processed well over 99% of all reported covered transactions, the same proportion as in 2009.
The median issuer fraud loss, which serves as the basis for the ad valorem portion of the interchange fee standard, is essentially unchanged from 2009 (five basis points). Further, when rounded to the nearest cent, the median fraud-prevention and data security costs remained at one 1 cent per transaction (the current fraud-prevention adjustment), said the Fed report.