ATM fee cap hits roadblock in D.C.

Legislation has been introduced in the U.S. Senate to delay a rule that would cap how much merchants pay when consumers swipe their debit cards in their stores.Retailers and the financial industry have been at odds about the legislation, with banks claiming it will result in added fees for consumers and merchants countering that it will lower the cost of doing business.Every time a consumer swipes his or her debit card at checkout, the retailer pays a small percentage of the transaction amount to the bank or credit union issuing the customer’s card, called the interchange fee.In the United States, more than one-third of all retail purchases are debit transactions, which can result in significant revenue for banks receiving interchange fees.Banks and credit unions receive, on average, 44 cents per transaction from interchange fees.Passed as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the rule would cap the fee that merchants pay per debit card transaction at 12 cents.Banks with less than $10 billion in assets would be exempt from the 12-cent cap. But New Hampshire’s community banks and credit unions will still be affected, since merchants would be more likely to go with the lowest-cost provider, said Ron Covey, president of Manchester-based St. Mary’s Bank.”It’s a major issue between the financial industry and the merchants,” said Covey.U.S. Sen. Richard Durbin, D-Ill., sponsored the amendment in December, which aims to make interchange fees “reasonable and proportional” to the actual cost of processing a debit card transaction.Nancy Kyle, president of the Retail Merchants Association of New Hampshire, said she doesn’t believe the average interchange fee accurately reflects what it costs banks to process the transaction, pointing to interchange fees that are lower in Canada and Europe.Covey said the bill doesn’t take into account the risk of fraud or nonpayment that the financial institution shoulders in processing the card, pointing to a security breach at a retailer that he said compromised member’s cards and cost the credit union $30,000.”(The merchants are) not taking the risk on the transaction.”How the rule could affect consumers also has been a point of contention between the two sides.Covey said the banks and credit unions will have to make up for the lost revenue somewhere, which could be passed on to the consumer through increased fees or the end of free checking accounts.But Kyle said that capping swipe fees would lower the cost of doing business for merchants — a savings that would be passed on to the consumer. “It’s going to benefit all sizes of retailers,” she said.”This is an issue that retailers have been fighting for several years,” said Kyle.U.S. Sen. Jon Tester, D-Mon., introduced legislation March 15 calling for a two-year delay in the proposed cap so its potential consequences could be studied.The Federal Reserve Board was supposed to issue interchange fee standards by April 21, but Chairman Ben Bernanke said the bank would not meet the deadline. If the rule is not delayed, it is slated to become effective July 21.Covey said the bill has smaller financial institutions in the state concerned.”For credit unions and community banks, this is one issue that we’re both in together.” — KATHLEEN CALLAHAN/NEW HAMPSHIRE BUSINESS REVIEW