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In a move that outraged US retailers, the Federal Reserve Board voted yesterday to limit swipe fees on debit card transactions to an average of 21 cents apiece, half the average of 44 cents that the banks have been charging but double the initially proposed cap of 12 cents per transaction.

The New York Times reports that “the cap marks a defeat for banks generally, although the news was not as bad as banks expected.” The financial services industry has been lobbying furiously in recent months, trying to delay or completely stop any regulation of the fees that it says generate $15 billion or more each year, but that retailer and consumer groups say are usurious.

In addition to the 21 cent cap, the Washington Post reports, the Fed said that “banks can also collect .05 percent of the amount of the transaction to recoup losses from fraud. In addition, the Fed will consider allowing them to receive another cent for each transaction if they take steps to prevent fraud. The new rules will take effect Oct. 1.”

The Merchants Payments Coalition said after the vote that it “is exploring all available legal options to address the irresponsible mistakes made in writing this rule.”

Condemnations from the retail sector were swift and specific.

“Today the voice of big banks drowned out the cries of consumers and Main Street merchants in the ears of the Federal Reserve,” says Leslie G. Sarasin, president and chief executive officer of FMI. “This ruling is inconsistent with the proposed ruling issued last December and utterly fails to be true to the spirit of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed more than a year ago.  It will not provide sufficient reform for businesses that are currently fighting high debit swipe fees.  Merchants and customers across America are the big losers today.”

"Every month the largest banks and credit card companies reap over $1 billion a month in debit swipe fees off the backs of Main Street businesses and consumers. It's extremely unfortunate that the Federal Reserve ceded to the bank's lobbying to increase the allowable debit swipe fees. Independent grocers and our customers are very disappointed that they will not benefit from the important reforms Congress intended. We fought for years to persuade Congress to reform debit interchange and we finally succeeded. This afternoon the Federal Reserve reversed our victory and every independent grocer in American has a right to be angry and disappointed." said Peter J. Larkin, President and CEO of the National Grocers Association (NGA).

“The Federal Reserve very clearly did not follow through on the intent of the law,” said Mallory Duncan, Chairman of the Merchants Payments Coalition. “This rule is unacceptable to Main street merchants and consumers, who were counting on the Fed to issue a fair rule that followed Congress’ law. Unfortunately, this rule does not meet those qualifications.”

Lyle Beckwith, senior vice president of government relations for NACS, called it “an irresponsible abdication of (the Fed’s) legal duty to implement the law as written.”

“The announcement today from the Federal Reserve is a disappointment to merchants and consumers who face unfair and excessive fees imposed by big banks and credit card companies,” said Sandy Kennedy, president of the Retail Industry Leaders Association (RILA).  “The Federal Reserve’s about-face suggests it abandoned the facts that the Board embraced in the December proposed rules, instead ceding to the wishes of the big banks and credit card companies.” 
KC's View:
Let’s be clear.

Retailers and consumers got screwed by the Federal Reserve yesterday.

Once again, banks got their way. Maybe not as much their way as they are used to getting, but they pretty much managed to avoid the will of the Congress and the intent of last year’s financial reform legislation when the Fed ruled yesterday. No doubt, some members of Congress breathed a sign of relief when this happened, because it means that the banks can now spend some of those fees on their re-election campaigns.

I am disgusted, but not really very surprised. When the news came over the wires, I happened to be reading a story in the New York Times about the logic used by the sentencing judge who gave Bernard Madoff a 150-year jail sentence. Judge Denny Chin wrote that “one of the traditional notions of punishment is that an offender should be punished in proportion to his blameworthiness.”

Seems to me that few of the people and organizations responsible for the financial collapse of just a few years ago have been held accountable. And it seems to me that yesterday’s ruling suggests that it is unlikely that this is ever going to change.

I would hope that all of the retail companies and organizations who were appalled by yesterday’s decision will respond to it by withholding any and all financial support from any Senator or Representative that has not fully and unambiguously backed financial reform and tough limitations on swipe fees. And I would hope that all of these organizations will now make it a priority to engage in a high profile public relations campaign to explain to consumers exactly what the banks are doing, and why retailers have been advocating for the shopper.

And finally, I hope someone has the common sense to allow Walmart to open a bank. Because I suspect that would do as much as anything to end all this nonsense. (I’m being a little facetious here. But only a little.)