Interchange Policy Issue Overview
ABA worked closely with other financial services trade associations to fight back against government-imposed price controls on debit interchange fees that banks earn from retailers.
Though legislation to stop the Federal Reserve's initial proposal failed to get the super-majority needed to clear the Senate, the Fed in June 2011 approved a significantly improved final rule that would cap an issuer's base fee at 21 cents per transaction and allow an additional 5 basis-point charge per transaction to help cover fraud losses. The Fed also issued an interim final rule that allows a fraud-prevention adjustment of 1 cent per transaction conditioned upon an issuer adopting effective fraud prevention policies and procedures.
The effective date for the final and interim final rules was October 1, 2011.
For an average $40 transaction, the new combined rate of 24 cents — including the fraud-loss surcharge — enables issuers to recover twice as much as they would have been allowed under the Fed's original 12-cent price cap proposal. Because the 5 basis point adjustment for fraud losses will fluctuate with the size of the transaction, the interchange level will also fluctuate. The new pricing, however, is still about a 45 percent reduction from prevailing market rates and will negatively impact revenue at all banks, including community banks.
Though the Fed noted that it has limited means available to enforce the statutory exemption of issuers with under $10 billion in assets, the Fed agreed to take steps to reinforce the exemption and monitor its effectiveness. ABA also is watching closely to determine whether market incentives created by this rule inspire retailers to drive business away from community banks, and whether "retailers reward customers with lower prices from their billion-dollar windfall or simply pocket the money."
- Joint Comment on Debit Card Fraud Prevention Adjustment (Sept. 30, 2011)
- ABA Letter to Fed Urging Improvements to Proposal (June 20, 2011)
- Interchange: Letter To Senate In Support of Amendment (June 7, 2011)
- Memo to Senate Refuting Merchant Misinformation (May 20, 2011)
- Letter on Small Bank Carve-Out from ABA and State Bankers Associations (May 12, 2011)
- Letter on Small Bank Carve-Out from ABA, ICBA, and Credit Unions (May 10, 2011)
- ABA Comment on Debit Card Interchange Fees (Feb. 22, 2011)
- Joint Comment on Debit Card Interchange Fees (Feb. 22, 2011)
- Topic A: Buyer's Remorse on Interchange — column by ABA President and CEO Frank Keating (Feb. 18, 2011)
- ABA Interchange Task Force Letter to Fed (Dec. 13, 2010)
- Topic A: Defending Interchange Revenue — column by Interchange Task Force Co-Chairs (Nov. 29, 2010)
- Topic A: The Interchange Fairy Tale — column by ABA SVP Ken Clayton (May 7, 2010)