NRF Says Overturning Dodd-Frank Would Reinstitute Price Fixing by Card Companies

June 7, 2016 WASHINGTON – The National Retail Federation today released the following statement after Rep. Jeb Hensarling, chairman of the House Financial Services Committee, announced plans to repeal swipe-fee reform and the Dodd-Frank Wall Street Reform Act.

“Today Jeb Hensarling announced that he wants to repeal an important competitive change in Dodd-Frank reform and return to the bad old days when card companies and banks freely picked the public’s pocket,” NRF Senior Vice President and General Counsel Mallory Duncan said.


“Protecting bank profit margins at the expense of competition is not sound public policy and it will harm merchants and consumers. The financial services industry attempted to get Congress to reject transparency and competition in 2010 and again in 2011. Both efforts failed. On behalf of retailers and their customers, NRF will fight for free and open markets.”

Swipe fees on debit and credit cards are many retailers’ second-largest operating cost, behind labor. These fees threaten small retailers with failure and keep merchants from hiring and expanding, slowing the entire economy. Exorbitant swipe fees also mean consumers pay higher prices. American merchants and consumers still pay the highest swipe fees in the world on debit and credit cards, according to the Federal Reserve Bank of Kansas City.

Under the Dodd-Frank Consumer Protection and Wall Street Reform Act of 2010, the Federal Reserve was required to adopt regulations that would result in debit swipe fees that were “reasonable and proportional” to the actual cost of processing a transaction. Federal Reserve staff calculated the average cost at 4 cents per transaction and proposed a cap no higher than 12 cents. Nonetheless, after heavy lobbying from banks the Federal Reserve Board of Governors eventually settled on 21 cents plus 0.05 percent of the transaction for fraud recovery and allowed another 1 cent for fraud prevention in most cases. The cap, which applies only to financial institutions with $10 billion or more in assets, took effect in 2011 and totals about 24 cents on a typical debit card transaction.

NRF is the world’s largest retail trade association, representing discount and department stores, home goods and specialty stores, Main Street merchants, grocers, wholesalers, chain restaurants and Internet retailers from the United States and more than 45 countries. Retail is the nation’s largest private sector employer, supporting one in four U.S. jobs – 42 million working Americans. Contributing $2.6 trillion to annual GDP, retail is a daily barometer for the nation’s economy. NRF’s This is Retail campaign highlights the industry’s opportunities for life-long careers, how retailers strengthen communities, and the critical role that retail plays in driving innovation.


What will merchants really pay in debit card fees under Fed proposal?

Insights on the debit card portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act are presented in this blog article. As complicated as the credit card processing industry is, it’s not surprising that those outside the industry, including the media, miss some important points. The debit card proposal by the Federal Reserve would establish debit card interchange fee standards and prohibit network exclusivity arrangements and routing restrictions. The media response is growing as the end of the public comments period nears, and today I read Debit card fees headed lower for merchants, published by the Sun Sentinel, a South Florida newspaper.


First, let’s examine the often repeated cost merchants pay. The numbers reference 2009 Federal Reserve data. The “average debit cost is $.44 per transaction based on 1.14% of the purchase price. $.56 on swipe debit and $.23 on pin debit”.  Other than Wal-mart, you can bet most merchants pay more than this. Signature debit interchange is currently .95% for Visa and 1.05% for MasterCard, plus $.15 each. The example below is for a SWIPE RETAIL transaction.

$38.59 Average transaction using standard sale referenced

$.37 @ .95% interchange, non-negotiable.

$.15 per transaction interchange, non-negotiable.

$.04 Dues and assessments, non-negotiable.

$.08 merchant discount at 20 basis points, negotiable.

$.15 authorization, settlement, capture, varies by vendor, partially negotiable.

$.79 total cost to merchant= 2%

My point is that interchange is only part of the merchant cost. Pin debit has changed in the last 24 months. Merchant used to mostly pay a low fixed cost per transaction, but now that has shifted to more closely resemble the interchange table.

Here’s the same example using Interlink, one of the most popular networks.

$.31 @ .80% interchange, non-negotiable.

$.17 per transaction interchange, non-negotiable.

$.00 Dues and assessments, non-negotiable.

$.08 merchant discount at 20 basis points, negotiable.

$.15 authorization, settlement, capture, varies by vendor, partially negotiable.

$.71 total cost to merchant= 1.8%

A $.23 average pin debit cost is a thing of the past. It used to be a flat fee for pin-debit, but now virtually every network has moved to a percent of the sale, plus a pretty high transaction fee and no cap.  See    Pin-debit network fees 2010 chart for more details.

Media reports of merchants adding 1-2% to their products and services to cover costs is probably not enough on the low end. The ‘targeted average interchange is 1.79%’ according to a Visa report two years ago. Only the most efficient merchants are achieving that. Small businesses and many other retailers average over 2%. Internet companies pay higher fees. 2% tacked on to goods and services is more realistic.


Here’s what the proposal states. “Two alternative interchange fee standards would apply to all covered issuers: one based on each issuer’s costs, with a safe harbor (initially set at 7 cents per transaction) and a cap (initially set at 12 cents per transaction); and the other a stand-alone cap (initially set at 12 cents per transaction).”

It LIMITS what card issuersthe banks– can collect! It does not limit what the associations i.e. MasterCard, Discover, and Visa who set interchange rates, can charge. Merchants who think they’ll be paying $.12 a transaction in the future are being misled. Costs will almost certainly go down, but who knows what this will really shape into.


One idea being bandied about is discounts. The same Federal legislation signed into law in July 2010, enables merchants to offer discounts to buyers. For example, a merchant can offer a discount if the consumer chooses debit over credit.

What merchant will want cashiers making decisions about whether the card qualifies and how much of a discount the consumer can receive? The mistakes alone could offset any gains. Lucky for me, we have a technology solution that solves this problem for merchants. Here are some key elements:

  • Identifies type of card.
  • Automatically calculates discount and puts it on customer receipt.
  • Merchant can view trends to determine when to offer the discount. For example, why offer a discount in the morning, if most customers already use their debit card during that time of day?
  • Merchant can remotely turn on and off messaging at the consumer terminal with the discount offer.
  • Cashiers are completely removed from the process of identifying any type of card. This has proven to increase pin-debit penetration from under 15% to over 75%.


Are consumers so attached to their rewards they won’t give them up? Everyone understands there is a cost associated with rewards, right? Banks will have to adjust their fees or their rewards plans, but it’s only debit cards, because credit cards are not affected by the proposal. Banks have been expanding rewards card plans on debit cards to collect more fees.  When the consumer enters their pin number, the bank won’t get that fee any more. The merchant also reduces risk because chargeback’s are eliminated. In my opinion, consumers will choose free use of their debit cards over rewards, and simply switch banks if they have to pay a fee.

What will merchants really pay in debit card fees under Fed proposal? I don’t know, but I’m certain of one thing. It won’t be $.12 a transaction.