Putting an end to one of the biggest lobbying fights of the year, the Federal Reserve yesterday finalised rules capping the transaction fees that merchants pay to banks whenever a customer makes a purchase with a debit card.As it turns out, neither the banking industry nor the retail sector are too happy about the final result.
The finalised rule caps debit card fees at 21 to 24 cents per transaction for banks with more than $10 billion in assets. Yes, that’s about half of what current fees are, but it’s double the 12-cent cap that the Fed had originally proposed in December.
So what’s happened in the months since?
We’ve been following the fight, but here’s a recap: Banks, fearing a loss of billions in fee revenue, pulled out the stops—launching ad campaigns and a Twitter campaign, writing letters to the Fed, threatening to sue, in one case actually suing, and donating to lawmakers who supported delaying the rules.
They also warned that capping the fees would force banks to charge consumers for basic services to make up the difference. It’s not clear how much they spent on their campaign against the regulations, but commercial banks and credit unions have spent more than $17 million overall on lobbying so far this year, according to the centre for Responsive Politics.
After their efforts, the rules were loosened and their implementation delayed until October. But banks have warned that they still plan to increase consumer fees.
“Consumers will still see higher fees for basic banking services, and banks—particularly community banks—will still feel the revenue pressures that this rule will cause,” American Bankers Association president Frank Keating said in a statement. “We will continue to aggressively advocate for remedies that will mitigate any harm caused by this regulatory action.”
As for consumers, it’s not clear whether they’ll come out ahead. David Evans, a former Visa adviser who runs a consulting firm catering to the financial industry, has said that consumers have no reason to be happy—they’ll lose their bank perks and have no guarantee that retailers will pass on any portion of their savings.
But Georgetown University law professor Adam Levitin takes a different view. He’s made the argument that competitive forces make retailers more likely to pass on savings to consumers, and that in issuing the final rule, “the Fed bent over backwards to help the banks on this. How they go from 12 cents to 21 cents is never explained in the rulemaking.”