What Debit Card Interchange Reform?!August 1, 2013 | By: Sean Murray
After years of debating over the law to cap debit card interchange fees and its eventual enactment, a federal court has struck it down. The 21 cent cap is gone but not because it was deemed unfair to banks but because the court thinks the cap should be even lower.
I wrote about the law several times over the last couple years. In the beginning, it was unclear as to what a debit card fee cap really meant, as I myself even explained it incorrectly the first time or two. The majority of folks believed the cap applied to the end user, the merchant, which helped to encourage small businesses,journalists, and even consumers to rally around it.
But when the law actually went into place, not much really changed because it didn’t have much to do with small businesses at all. The debit card reform law capped the amount of interchange fees that an acquiring bank pays a card issuing bank. The merchant wasn’t even involved although the acquirer can pass their new savings on to the merchant, but they don’t have to.
Many acquirers did pass some of the savings on but merchants went and did the opposite of what they promised. Their call to have their swipe fees lowered initially was so that they could lower their retail prices and and pass the savings on to consumers. Consumers believed this logic and supported small businesses to get this law implemented. A study by the Electronic Payments Coalition however, found that 67% of small businesses kept their prices the same or raised them.
There was clearly a lot of misinformation around this law and now it’s been struck down.
Two big misconceptions:
merchants will pay a maximum 21 cent debit swipe fee: Wrong
small businesses will turn their debit card fee savings into lower prices for consumers: wrong
My previous articles about debit card reform:
- The Debit Interchange Fee Battle Continues 2/7/12
- Law to Reduce Debit Card Fees to Retailers has Opposite Effect 12/12/11
- Where’s the Debit Discount? 12/11/11
- Don’t Make Us Pay is Back at it Again 10/21/11
- Revenge for the Durbin Amendment 10/3/11
- Don’t Make Us Pay Goes Quiet 7/11/11
- 15,000 Exempt From the Debit Card Interchange Fee Standards 7/14/11
- And the Misinformation Continues 7/12/11
- Blackjack! 21 Cent Debit Card Interchange Fee Plus 5 Basis Points 6/30/11
- Debit Card Feed Reform to be Finalized June 29 6/28/11
- Save My Debit Card Video Finalists 5/9/11
- Debit Card Reform is Gaining Steam in Canada 4/18/11
- Interchange Regulation and Reduction 4/16/11
- Wells Fargo, Chase, SunTrust Cancel Debit Rewards Program 3/28/11
- http://debanked.com/2011/08/6497526-the-merchant-processing-resource-is-not-hiring/ 3/23/11
- A Few Good Senators Try to Stop the Madness 3/17/11
- Say Goodbye to Debit Cards 3/11/11
- Congressman Steve Israel Replies to Us 2/22/11
- Debit Card Costs May Be Put on the Consumer 2/18/11
- Electronic Payments Industry Changing Forever 12/17/10
Sean Murray is the founder of deBanked, an 11-year veteran of the merchant cash advance industry, a casual Lending Club and Prosper note investor, the co-founder of Daily Funder, an alternative lending speaker, consultant, writer, and enthusiast. Connect with me on LinkedIn or follow me on twitter.