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Debit law nets consumers $6 billion

By Marcie Geffner · Bankrate.com
Wednesday, October 2, 2013
Posted: 3 pm ET

Retailers saved $8.5 billion last year due to federally mandated caps on debit card swipe fees, according to a new report by economist Robert J. Shapiro. It estimated that the majority of those savings, about $5.9 billion, was passed on to consumers in the form of lower prices.

The 33-page report was prepared for the Merchants Payments Coalition, an organization formed by the National Retail Federation and other trade associations in 2005 to fight rising swipe fees. The NRF is a Washington, D.C.-based trade group that represents retailers. The NRF said the report's findings were based on earlier studies of how retailers typically pass on cost savings from vendors.

Mallory Duncan, NRF senior vice president and general counsel, said the report offered "clear evidence" that retailers were saving money from the caps, and that they're sharing those savings with customers.

"Both consumers and the economy are better off," Duncan said in a statement. The report didn't measure how much consumers lost when banks cancelled their debit card reward programs.

The Durbin Amendment to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act paved the way for caps on debit card swipe fees. It required the Federal Reserve to conduct a survey of those fees, which retailers, restaurants and other merchants pay banks and other card issuers when a customer uses a debit card to purchase goods or services.

The Fed then set the cap at 21 cents per debit card transaction, plus a few extra cents in some circumstances. Retailers responded with a lawsuit, alleging the Fed had set the caps too high. A U.S. district court judge ruled in the retailers' favor, but the Fed is appealing that ruling.

The Shapiro report found retailers would have saved $12.5 billion if the cap had been set at no more than 12 cents per transaction, and consumers would have saved more if a lower cap had been set.

"The savings could have been far greater for retailers and consumers alike if the Federal Reserve had capped debit swipe fees at the level intended by Congress. The fight to bring swipe fees under control is far from over," Duncan said.

Follow me on Twitter: @marciegeff.

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