Home Depot Lowers Prices After Debit Swipe-Fee Victory

Home Depot (HD), one of the banking industry's fiercest opponents in the battles over interchange regulations, says its customers have benefited from lower prices after regulators capped debit card swipe fees.

Retailers won a victory last year when the Federal Reserve capped debit interchange, despite a prolonged banking industry campaign to delay or overturn the proposed regulations. Now Home Depot, long one of the most vocal critics of the prices retailers pay to accept debit and credit cards, says its customers are paying less.

Home Depot has lowered its prices for more than 3,000 products since the debit swipe fee caps took effect in October, according to Dwaine Kimmet, the retailer's treasurer and vice president of credit. Those price cuts cannot be directly attributed to the regulations, which were enacted as part of the Durbin Amendment to the Dodd-Frank Act, but Home Depot had lower operating costs as a result of the caps, he said.

"The money saved [by] Durbin goes into the pool of savings, lowers our overall operating costs and allows us to reinvest in the business to lower prices," Kimmet said in an interview last week. "We have absolutely lowered prices … [but] what I can't do is draw that direct correlation to Durbin."

Banks and retailers have long traded jabs over the fallout from interchange regulations, with banks warning that consumers will ultimately end up paying more for banking services without paying less at retailers. The Electronic Payments Coalition, an industry lobbying group, released a study in December finding that some merchants had not lowered prices since the debit card swipe fee caps went into effect.

Meanwhile, many banks have raised their prices. The Durbin amendment eliminated an estimated $5 billion of the industry's annual debit interchange revenue, causing many banks to add or raise the fees they charge for once-free checking accounts and debit card fees. For example, basic checking customers of SunTrust Banks (STI) — one of Home Depot's sister Fortune 500 companies in Atlanta — starting in August must have a minimum daily balance of $1,500 or at least $100 directly deposited into their account each month to avoid a monthly $7 fee.

Home Depot, the nation's fourth-largest retailer, has long protested the fees it pays banks and processing companies every time its customers pay with a debit or a credit card. Kimmet has said that interchange fees represent Home Depot's third-highest operating cost, after real estate costs for its stores and wages for its employees.

The Atlanta retailer is still unhappy with the prices it pays for credit card interchange, he said last week.

"I don't want to at all take away from Durbin — we're very thrilled about it," Kimmet said. But "bank card fees have increased when my cost of accepting cash and checks have decreased. … Speaking primarily on the credit side, bank card fees are going up."

Home Depot is actively looking for alternatives to the traditional credit card system, in a bid to pay less for accepting payments — and to force the hands of networks Visa (V) and MasterCard (MA), which largely control the interchange system's pricing. The retailer is accepting PayPal's (EBAY) new in-store technology at its registers, and Kimmet says Home Depot is "thrilled with the PayPal relationship."

"We're thrilled with our acceptance costs, and more particularly, where we think it will help us get acceptance costs, by applying pressure to the networks," he said. "We've attempted to work with the networks to lower fees. … We have to approach it however we can, and we see this as a great lever to do that."