Regulatory Updates Regarding Credit Card Fees: Q2/24
This article provides an update regarding ongoing regulatory activity impacting credit card processing.
Comment Period for Federal Reserve Proposal to Lower Debit Interchange Ends
The comment period for a proposal by the Federal Reserve to lower the debit interchange fee cap by about 30% ended May 13th. Initially scheduled to end in February, it was extended to provide additional opportunity for interested parties to provide comments. Approximately 2,500 responses were received.
The fee cap which the Fed proposes changing applies to financial institutions with assets in excess of $10 billion.
Submitted comments reveal that both financial institutions and merchants take issue with the proposal. Some merchants argue that the rates are still too high while bankers argue that the proposed fee structure does not accurately assess the impact and risk of fraud. Bankers assert that interchange revenue funds investment in fraud mitigation and payment innovation.
When the proposal was announced in October 2023, the Fed acknowledged that it could have a mixed impact on consumers. Merchants might pass savings on to cardholders, but banks might increase fees on debit cards and/or deposit accounts to recoup the lost income.
A final vote by the Board of Governors of the Federal Reserve will be required to change the cap.
For more detail on the Fed’s proposal, see the Verisave blog: Important Legal and Regulatory Developments Regarding Interchange Fees
For more information on the comments received by the Fed see the PYMTS article: Debit Fee Cap Proposal Comment Period Floods Fed Website
Legislation Introduced to Exempt More Banks from Debit Interchange Caps
In May 2024, the US House of Representatives Financial Services Committee advanced a bill to the full House for consideration which contains a provision that will exempt more banks from interchange fee caps on debit transactions.
Currently, per the Durbin Amendment, the maximum interchange a card issuer with more than $10 billion of assets can charge on a debit transaction is 21 cents plus 0.05% of the transaction amount. The issuer is also allowed to charge an additional one cent for fraud detection. The new bill, known as the Bank Resilience and Regulatory Improvement Act, contains a provision that will raise the threshold from $10 billion to $50 billion of assets, thus exempting more banks from the cap. According to the Federal Reserve, only about 40 banks out of more than 2,100 US charted banks have more than $50 billion in assets.
The rationale for exempting more banks is that this will provide them with more income to invest in innovation.
Next, the Bank Resilience and Regulatory Improvement Act will need to be voted on by the full House of Representatives. A vote of the full House has not yet been scheduled.
For more information, see the PYMTS article: New Legislation Could Exempt Banks From Durbin’s Debit Fee Cap Impact
$8 Credit Card Late Fee Suit Returned to Washington DC
A lawsuit filed by the US Chamber of Commerce, the American Bankers Association and other industry plaintiffs challenging a rule by the Consumer Financial Protection Bureau (CFPB) capping credit card late fees at $8 is being moved to Washington DC for the second time. The lawsuit was filed in the Fort Worth Division of the Northern District of Texas.
Back in March, when the Judge Mark Pittman initially ordered the case moved to Washington DC, the US Court of Appeals for the Fifth Circuit returned it to Texas, finding Judge Pittman did not have the authority to transfer the case because he had not ruled on the plaintiffs’ motion for a preliminary injunction to pause the rule.
Then, in early May, Judge Pittman granted the plaintiffs’ request to put the rule on hold while the US Supreme Court decided whether the CFPB’s funding through the Federal Reserve was constitutional. In late May, the US Supreme Court ruled the funding was constitutional and the Fifth Circuit closed out the appellate level challenge.
On May 28th, Judge Pittman wrote an order to move the case to Washington DC again, noting that none of the banks or credit companies affected by the rule are based in the Fort Worth Division of the Northern District of Texas, while most of the attorneys involved with the case are in Washington DC.
The fee cap which was initially to go in effect March 14th remains on hold pending the resolution of the lawsuit.
For more information see this Bloomberg Law article: Credit Card Late Fee Case Moved Again from Washington to Texas
If your business is looking to better manage your merchant account or reduce fees, we’re here to help. We fix and monitor your existing merchant account, and we bring that money back to you. No need to change processors or add a project to your team’s already hectic workload. Schedule a consultation today.
Verisave is a third-party cost-reduction firm specializing in merchant accounts and credit card processing fees.
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.