Small Banks Charging More Than Competitors After Debit Reform, Says Federal Trade Commission Report

Visa & MasterCard Under Investigation By FTC

WASHINGTON--()--Small banks and credit unions exempted last year from charging lower swipe fees on debit cards have not been harmed by debit card reform legislation and are charging more in debit card swipe fees than their competitors, the Federal Trade Commission has found in a recently-released report.

The FTC also announced it is investigating Visa and MasterCard to determine if they have violated the law by disrupting merchants’ choice of network to handle its transactions. The regulatory agency is working with the U.S. Department of Justice in its investigation.

“The FTC report confirms what merchants have been saying all along, that after the reforms small banks and credit union would not only not be harmed by debit but also would benefit from reform, along with consumers, merchants and the overall economy,” said Doug Kantor, counsel to the Merchants Payments Coalition, a group of retailers and merchants concerned about rising credit card swipe fees.

In 2011 Congress passed what is known as the Durbin Amendment, which required the credit card companies and banks with assets above $10 billion to lower price-fixed debit card swipe fees. Banks and credit unions with less than $10 billion in assets were exempted from this reform and allowed to continue using high, price-fixed fees. The credit card and banking industry protested, falsely arguing the move could hurt smaller banks and credit unions.

The FTC found otherwise.

“…(I)nterchange fees paid to exempt issuers are higher than those paid to non-exempt issuers. A recent report by the General Accountability Office also concluded that ‘community banks and credit unions have not, on average, experienced a significant decline in their debit interchange fees…. This is consistent with early reports that the payment card networks had adopted a two-tier fee structure for exempt and non-exempt issuers.”

The FTC, which works for consumers to prevent fraudulent, deceptive and unfair business practices, also is coordinating with the DOJ to investigate Visa, MasterCard and other card processors to determine if they have violated requirements of the Durbin Amendment.

The report said the agency had uncovered information from “public sources as well as industry participants” that certain practices by the credit card industry may “operate as a penalty” against merchants’ routing of card payments.

In May, Visa revealed a DOJ antitrust probe into one of its newly adopted fees, known as the Fixed Acquirer Network Fee.

Swipe fees for both debit and credit cards were more than $50 billion in 2011, costing U.S. households more than $400 that year. The fees are more than any other country in the world. For merchants, swipe fees are on average their second highest operating cost, after labor. Swipe fees are also merchants’ fastest-growing expense having more than tripled since 2004, even while technology has lowered the cost of card transactions to about four cents a swipe, according to the Federal Reserve.

After the Durbin Amendment passed, the Federal Reserve ruled that centrally price-fixed debit swipe fees should drop from an average 42 cents a transaction (over 10 times actual cost) to 12 cents. Fees that banks set themselves without price-fixing were not affected by debit reform. The big banks, however, immediately leaned on the Fed, forcing their regulator to set the debit swipe fees at 21 cents, five times the banks’ actual costs, plus .05 percent of the transaction and an additional one cent for fraud prevention.

Read more about debit and credit reform here: The Facts About Debit Reform and The Facts About Credit Card Swipe Fees

The Merchants Payments Coalition - - is a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees.


Merchants Payments Coalition
Liz Poston, 202-207-3678


Merchants Payments Coalition
Liz Poston, 202-207-3678