Banks are hitting back at retailers over which side is being harmed by inflation — part of their long-running fight about the future of interchange fees.
Under the Durbin amendment, which was part of the Dodd-Frank Act of 2010, banks and credit unions with less than $10 billion of assets are exempt from a cap on debit-card interchange fees.
But that asset threshold has never been adjusted for inflation, the Electronic Payments Coalition noted this week. Based on 2011 dollars, the current cutoff is now $7.7 billion, according to the group, whose members include both banks and card networks.
“Many credit unions and community banks must now adhere to the interchange cap, though they would have been exempt if the asset limit were adjusted for inflation,” Jeff Tassey, chairman of the board of the Electronic Payments Coalition, said in a press release Wednesday.
“Artificially capping interchange, and not adjusting the cap for inflation, reduces the funds available for smaller financial institutions to provide critical banking services like card rewards and data security for customers as well as risk and fraud protection for merchants,” Tassey added.
Merchants
But the Electronic Payments Coalition cites data saying that the credit-card interchange rate, which is unconstrained by the Durbin amendment, held steady at 1.8% between 2016 and 2021. Visa and Mastercard hiked one component of those fees
The debit-card interchange rate declined from 0.79% to 0.78% between 2014 and 2019, according to the coalition.
On Thursday, the Independent Community Bankers of America, which represents small banks, also expressed support for the idea of raising the $10 billion-asset threshold.
The Merchants Payments Coalition is appealing to lawmakers to reform credit card interchange rates as Visa and Mastercard prepare to increase some fees next month after a yearlong delay.
“Given the current high inflationary environment, small financial institutions that were never intended to be in scope are now subject to these artificial price controls,” Nick Denning, senior vice president of payments industry relations for the group’s payment subsidiary, said in an email.
“Revenue tied to interchange continues to enable community banks to offer critical banking services like card rewards programs and data security," Denning said. "Meanwhile, historically high inflation rates are resulting in cost pressures tied to administering and delivering these critical services and capabilities for consumers.”
For their part, merchants have been arguing that the Federal Reserve should lower the maximum prices allowed under the Durbin amendment, which is named after its legislative sponsor, Sen. Richard Durbin, D-Ill.
Between 2009 and 2019, the cost of processing debit card transactions at banks with more than $10 billion of assets fell by nearly half, according to Fed data.
In recent months, trade groups representing merchants have seized on high inflation as an argument in favor of lowering the price cap.
“So you have the problem of retailers having to chase their tails,” Doug Kantor, a member of the Merchant Payments Coalition’s executive committee and general counsel of the National Association of Convenience Stores, said in an interview Thursday.
“If they raise prices to cover inflation, then they’re hit with higher fees, and then they have to raise their prices again to cover the higher fees,” he said.
Merchants
Swipe fees climbed 25% year over year last year, reaching $137.8 billion, the Merchants Payments Coalition said in its press release.
