Banks Fight Legislation to Curb Debit Swipe Fees

By Antonio Perez
Antonio Perez
Antonio Perez
March 10, 2011 Updated: March 10, 2011

NEW YORK—One measure of last year’s Credit CARD Act legislation, caps on so-called swipe or interchange fees, is stalling in Congress as banks, merchants, and credit card companies are escalating their resistance efforts to the measure.

Swipe fees, or fees which merchants such as a grocery store pays to the credit card company for each debit card transaction, make up a sizable portion of a bank’s revenues. Typically, such transaction fees are around 1 to 2 percent of the amount of the transaction, with a cap, but the Federal Reserve, through the CARD Act, hopes to limit the fees to at most 12 cents per transaction.

Such fees, while small on a per-transaction basis, add up to around $1 billion in revenues annually for JPMorgan Chase & Co., according to a CNNMoney report.

Banks have increased lobbying on Capitol Hill, arguing that cutting down such fees is an anti-consumer measure, and would force banks and credit unions to charge higher fees in other areas, cut back benefits and rewards, and get rid of free checking accounts.

But others argue that any additional charges imposed by banks would be offset by lower prices on goods and services from merchants.

"Swipe fees cost merchants $12 billion a year, or $33 million per day, which our franchisees have no other choice than to pass on to their customers," said Bruce Maples, chairman of the National Coalition of Association of 7-Eleven Franchisees. The coalition has almost 5,000 member 7-Eleven franchises in the United States.

Chase Bank, the consumer bank business of JPMorgan, is reportedly mulling limiting each debit card transaction to $50 or $100 should the legislation hold. Any purchase of greater than that amount—such as shopping at the grocery store—using a debit card would be rejected.

Such measures would force consumers to use cash in purchases, or use their credit cards more, which could increase household credit card debt. The result? Lower credit scores and higher interest fees on carried balances.

Regardless, banks in the past have not been shy in charging consumers higher fees in areas with less regulatory restrictions. Many credit card owners have already noticed bigger fees and fewer benefits.

The Federal Reserve this week said that it might consider reviewing the fee limit proposals and exploring their impact on consumers.