Law & Order

New Law Limits Debit Card Swipe Fees

SEMA and 54 other trade associations asked Congress to limit the amount credit card companies can charge merchants when processing payments. Congress addressed some, but not all swipe fees when it enacted the new financial reform law.

Under the existing system, the merchant pays a transaction fee every time a card is used, whether for credit or debit. The “swipe” fees amounted to $63 billion in 2008. The fees can average 2%–4% for businesses that accept debit/credit cards and are automatically divided between the merchant’s bank, cardholder’s bank and network that processes the transactions.

As a result of the new financial reform law, the Federal Reserve now has the authority to ensure that debit card transaction fees are “reasonable and proportional to the actual cost incurred” when processing a transaction. However, the Federal Reserve’s power is limited to the fees charged or received by the issuing institution (bank). Credit card fees charged by a payment network (such as MasterCard or Visa) will be generally free from regulation.

Merchants are allowed to offer discounts for one form of payment over another (cash or check vs. debit or credit). Merchants are not free to favor one card network over another but can now choose which network to use to process their transactions (Pulse, STAR, etc.). This may spur more competition and lower transaction fees.

For further information, contact Stuart Gosswein at