Help keep debit card fees down

By Patrick S. Jury and John Sorensen

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More U.S. consumers now have debit cards than credit cards and use debit cards more often than cash, credit cards or checks. Unfortunately for all consumers, this convenient and preferred method of payment is about to get more expensive unless Congress takes action before July 21.

As part of the Dodd-Frank Act passed last year, Congress required the Federal Reserve to regulate what are known as debit card interchange fees. This fee is paid by a retailer whenever a

plastic debit card is swiped, with the average fee equaling about

1.5 percent of the transaction amount. It pays for the cost of the global electronic payments network, the financial institution's cost to administer the card program and costs related to reissuing cards in cases of merchant fraud.

When payment is made by plastic card, merchants are guaranteed payment, receive payment immediately and bear no risk of fraud loss. Despite the many benefits merchants receive, they are now trying to shift the cost of the payment network onto consumers.

In December, the Federal Reserve's proposed rule set a cap of 12 cents per transaction on debit card interchange. This government-set rate represents a 75 percent to 80 percent reduction in a financial institution's resource to pay for a world-class payment system. If Congress doesn't take action, consumers will end up paying the freight with new annual fees for debit cards and/or checking accounts. We're confident that retailers such as Walmart would not reduce the cost of goods to reflect the money it would save by not paying its fair share of interchange expenses.

Legislation offered by Sen. John Tester (S. 575) would delay implementation of the Fed's rule and allow careful study of the interchange issue.

The interchange provision in Dodd-Frank was the result of an eleventh-hour floor amendment that passed only because it “exempted” financial institutions under

$10 billion in assets. This exemption is not practical and has been called into question by Federal Reserve Chairman Ben Bernanke. Sen. Tester's bill simply stops the rule, studies its complex consequences and requires the Fed to start over.

Iowa's credit unions and banks are calling on Iowa's senators, Chuck Grassley and Tom Harkin, to support the Tester legislation.

Patrick S. Jury is President/CEO, Iowa Credit Union League, and John Sorensen is CEO, Iowa Bankers Association. Comments: patj@

iowacreditunions.com or jsorensen@iowabankers.com.