Interchange fees hitting low cost retailers the hardest

Doug Kantor

While the Durbin Amendment was intended to reduce the swipe fee costs that retailers pay banks to process debit card transactions, merchant representatives say the provision has had the opposite effect.

“The Durbin [A]mendment did not solve all the world’s problems and we are very clear about that,” Doug Kantor, counsel for the Merchants Payment Coalition and attorney for several retailers involved in a suit against the Federal Reserve, said, according to the National Journal. “But if the Fed had written the rule correctly then there would not be these very mixed results… you wouldn’t have some of these negative impacts that we have seen.”

Next week, the Federal Reserve will file a brief in response to the merchant-led lawsuit charging that the central bank set swipe fees too high, as many merchants claim the rule will result in approximately $8 billion in annual losses, ultimately forcing retailers to raise prices and reduce services.

The Durbin Amendment, sponsored by Senator Dick Durbin (D-Ill.), is a provision of the Dodd-Frank law that took effect in October. The rule required that the fees banks charge retailers to process card transactions be “reasonable and proportional” to the cost of processing.

Originally, the Federal Reserve Board set the interchange fee between seven and 12 cents, but decided to include associated labor, fraud prevention and technology costs, which raised the maximum rate to 21 cents.

Many retailers see the reduced interchange fees as still too high and burdensome, especially for smaller retailers. Retailers whose goods are cheaper, approximately $15 or less, such as convenience stores, coffee shops and candy stores, pay the maximum in interchange fees while banks have reduced rates for retailers who sell large-ticket items, the National Journal reports.

“That has translated into a sixfold increase for these smaller merchants selling everyday items and a massive decrease for merchants selling bigger-ticket items,” Trish Wexler, spokeswoman for the Electronic Payments Coalition, said, according to the National Journal.

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