Interchanges: Merchants Attacking Fed Reform
- In the US, three national merchant federations and two retailers have filed a complaint to oppose the debit interchange reform set by the Federal Reserve in July 2011, one year after the Dodd-Frank Act’s Durbin Amendment.
- A first project planned to cap the average interchange level from 0.40 to 0.12 dollar per transaction. The regulator further compromised and decided to set the limit at 0.21 dollar. In force since 1st October 2011, it also includes a variable share of 0.05% of the amount, plus 1% for effective fraud prevention measures.
- Merchants are opposing these last two elements, claiming they have not been explicitly foreseen by the Act. Issuers, for their part, remind that the reform has reduced their card revenues by half whereas services remain unchanged. The retail sector has already filed two other complaints since last summer, both rejected in final instance.
- Last month, a Research Intelligence study estimated the impact of increased debit card fees on bank customers’ behaviour. 43% of them would plan to use their credit card or cheques instead. Only one-third would envisage changing bank, the wealthiest customers first among them.
- A precedent is provided by the Australian market. In 2000, the so-called Wallis report led the Australian central bank to lower card interchanges, withdraw restricting rules on merchants’ acceptance and open membership in general-purpose card schemes. Reduced interchange levels did not however result in merchants lowering retail prices accordingly.
See July and October 2011 Insights