In a surprise late addition to the financial reform legislation, Congress required the Federal Reserve to regulate the fees that merchants pay to accept debit cards. The statute requires the regulated rate to include only per transaction costs and certain anti-fraud expenses. In December, the FED put out for comment a proposed rate of 12 cents per transaction, nearly 75% below the current average fee of 44 cents. Current rates are based on a percentage of the sale price.
Merchants were pleased with the FED's proposal. Banks were not, claiming that a fee that low would force them to lose money on debit card programs unless they charged their own customers. (Imagine that.) One bank has filed a constitutional challenge to the legislation, arguing that it constitutes a taking of bank property without just compensation and violates the equal protection clause because only the largest banks will have their rates regulated. The period for comment ends next Tuesday, February 22, and the FED must promulgate a final rate by April 21.
In recent testimony before the House Financial Services Committee, FED Governor Sarah Bloom Raskin explained that board members were "reserving judgment on the final rule" until they can consider all of the comments. Some lawmakers have expressed concern the FED has not adequately considered the cost of fraud prevention. Visa has ramped up a vigorous lobbying campaign, urging Congress to enact new legislation delaying the implementation of the regulation. Observers believe that changes at this point are unlikely. Representative Barney Frank, however, told the press that while he would not support the delay that Visa has requested, he would support instructing the FED to include more factors in the fee calculation.