New regulatory and legal developments involving the Federal Reserve and the Supreme Court have the potential to reduce the interchange fees merchants pay on debit transactions. Additionally, the administration of claims associated with the Payment Card Interchange Anti-Trust suit is expected to begin soon.
Verisave has also been monitoring the Credit Card Competition Act of 2023. There are no updates at this time; we will report updates as they become available. Our previous article on this topic can be found here.
On October 25th, the Federal Reserve proposed lowering the debit card interchange fee cap by about 30%. The Fed is proposing a fee reduction because its data indicates that debit-card issuer costs have declined in recent years.
The Durbin Amendment requires card issuers with $10 billion or more in assets to charge interchange fees on debit cards that are “reasonable and proportional to the cost incurred by the issuer with respect to the electronic debit transaction”.
The Fed proposes:
- Reducing the fee, which was set in 2011, from $0.21 plus .05% of the transaction amount, and a $0.01 fraud prevention adjustment to $0.144 plus .04% of the transaction and a $0.013 fraud-prevention adjustment.
- Updating the interchange fee cap every other year going forward, without public comment, by directly linking the fee components to data from the Board’s biennial survey of large debit card issuers.
The Fed also released its latest biennial survey of large debit card issuers which contains data on interchange fees, issuer costs and fraud related to debit card transactions in 2021. According to the report, the current debit interchange fee cap exceeded the average per transaction authorization, clearing and settlement costs, including issuer fraud losses, for 77.4% of covered issuers and 99.5% of covered transactions.
The Fed will collect public comments for 90 days. A final vote by the Board of Governors of the Federal Reserve will be required to change the cap.
The Fed said the proposal could have mixed results on consumers. Merchants might pass savings on to cardholders, but banks might increase fees on debit cards and/or deposit accounts.
For more information see this press release from the Federal Reserve, which includes links to a memo that details the proposed fee changes, and this Wall Street Journal article.
The U.S. Supreme Court has agreed to hear an appeal regarding the timeliness of a lawsuit challenging the Federal Reserves’ Regulation II, which set a cap on interchange fees for debit card transactions.
In 2021, Corner Post, a convenience store, joined a lawsuit challenging Regulation II, 10 years after the rule was implemented by the Fed. The Eighth U.S. Circuit Court of Appeals ruled that the suit was brought too late since the Administrative Procedure Act (APA), has a six-year statute of limitations for rules challenges. Corner Post argues that it met the deadline for challenging the regulation because it sued within three years of opening and first being injured by the regulation, but the Eight Circuit ruled that the clock for APA claims starts running the date of rule publication, not from the date of alleged injury.
For more information see this Bloomberg Law News article.
In March 2023, the Second U.S. Circuit Court of Appeals upheld a $5.6 billion antitrust class-action settlement with more than 12 million merchants that accused Visa, Mastercard and banks that issue the networks’ payment cards of violating antitrust laws, causing merchants to pay excessive fees to accept Visa and Mastercard payment cards.
Preparation is underway for the administration of the claims process. In September the court approved the proposed claim form, approved sending claim forms to class members in December 2023, and approved hiring a PR firm to make eligible merchants aware of the claims process.
The settlement applies to entities that accepted Visa and Mastercard branded cards in the United States at any time from January 1, 2004, to January 25, 2019. Entities that previously settled with the defendants are not eligible to receive funds from the settlement.
The original lawsuit was filed in 2005 and a preliminary settlement was approved in 2012, but it has been the subject of appeals for over a decade.
For more information see the Official Payment Card Interchange Fee Settlement website.
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Verisave is not a payment processor, and is not affiliated with any processors, card brands, or banks.
Verisave has more than 20 years of experience optimizing and monitoring the credit card processing industry.