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Fed won’t adjust swipe-fee cap

By Marcie Geffner · Bankrate.com
Friday, March 8, 2013
Posted: 2 pm ET

Banks that aren't happy with the government-imposed cap on debit card swipe fees won't be cheered by Federal Reserve's recent announcement that it has no plans to change the current scheme.

"The board does not plan to propose revisions to the Reg. II interchange fee standard or the fraud-prevention adjustment," the Fed stated.

The Fed conducted a survey of debit card issuers' costs and issued a 39-page report, the second in a series to be published every two years. The report contains summary information about debit card transactions in 2011, including volume, value, swipe fee revenue, cost and fraud losses related to those transactions.

According to the report, 67 percent of financial services companies had average debit card transaction costs of less than 21 cents in 2011. Twenty-one cents is the base component of the swipe fee cap.

The proportion of companies that had costs lower than 21 cents declined from 80 percent in 2009 because more foreign banks and banks that have very small debit card programs were added to the survey, the Fed said. Banks that processed the most transactions generally had the lowest per-transaction cost.

Banks, merchants and consumers suffered losses of $1.38 billion due to debit card fraud in 2011, according to the report. Signature transactions accounted for the bulk of those losses, $1.13 billion, while PIN (personal identification number) transactions accounted for only $204 million. Card-not-present and counterfeit card fraud continue to be the most common types of debit card fraud.

The swipe-fee caps were imposed due to the Durbin Amendment, which was part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Banks subject to the regulation currently can't collect a swipe fee of more than 21 cents, plus 5 basis points on an ad valorum basis and, in some cases, a 1-cent fraud-prevention adjustment.

The regulation doesn't apply to banks that have consolidated assets of less than $10 billion, certain government-administered debit cards or certain prepaid debit cards.

Card networks processed 46.7 billion U.S. debit card transactions worth $1.82 trillion in 2011, a 24 percent increase in volume and 27 percent increase in value compared with 2009, according to the report.

Are you using your debit card more often? Have you tried a prepaid debit card?

Follow me on Twitter: @marciegeff.

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