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Fed Won't Revisit Interchange Cap Rule This Year
WASHINGTON (3/6/13)--Yesterday the Federal Reserve Board said it does not plan to propose revisions to its debit card interchange fee standard or the fraud-prevention adjustment based on results of its survey of transactions in 2011.

The Fed released its bi-annual published report summarizing information on the volume and value, interchange fee revenue, certain debit card issuer costs, and fraud losses related to debit card transactions in 2011. The report is issued in connection with the Dodd-Frank debit card interchange fee provisions that went into effect in October 2011.

The standard limits debit interchange fees for issuers with assets of $10 billion or more to 21 cents, and allows an additional five basis points per transaction to be charged to cover fraud losses. An extra penny may be charged by financial institutions that are in compliance with established fraud prevention standards. Most credit unions are exempt from the fee cap.

The Fed report highlighted information from May that said the average interchange fee per transaction received by exempt issuers declined 4%, from 45 cents to 43 cents after the interchange fee standard became effective Oct. 1, 2011.

Also for exempt issuers, the small decrease in interchange fees was fairly proportional between signature and PIN transactions, according to the Fed's 2011 data.

The Credit Union National Association continues to closely monitor the impact of the interchange cap and whether market forces appear to drive down the fees that the exemption for smaller institutions is intended to protect.

A recent CUNA survey found that per-transaction interchange revenue has declined in five of the six quarters since implementation. Because of these declining rates, total interchange revenue growth slowed considerably after the cap's implementation, and actually declined in the quarter ending in September 2012, the report noted. The third quarter of 2012 is the first full quarter since implementation of the routing and network exclusivity provisions of the rule.

CUNA is concerned that as the routing provisions take hold, there could be further declines not only in per-transaction rates, but also total interchange revenue. 

Also in the report, the Fed said that for issuers covered by the cap, 2011 costs of authorizing, clearing, and settling (ACS) debit card transactions, excluding fraud losses, varied greatly across respondents in 2011. The median issuer had an average ACS cost of 11 cents and the issuer at the 75th percentile had an average ACS cost of 36 cents.

Debit card issuers with the most transactions for the most part had the lowest ACS costs per transaction--reflected in an overall average of 5 cents per transaction. Issuers with the smallest debit card programs, on the other hand, generally had the highest ACS costs per transaction.

The Fed estimated debit-card fraud losses to all parties, that is merchants, cardholders, and issuers, to be $1.38 billion in 2011. The average loss was estimated at approximately 8 bp per debit card transaction, down slightly from 2009.

The median covered issuer's average fraud loss per transaction was nearly 5 bp, the same as in 2009. The median covered issuer had average fraud prevention and data security costs of slightly less than 1.5 cents per transaction, the Fed said.


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