Federal Reserve announces final debit interchange rules
Wednesday, June 29, 2011
Posted by: Lynn Larson, NAPCP
The Board of Governors of the Federal Reserve met at 3:30 p.m. Eastern today regarding the final rules and rates associated with electronic debit transactions.
Proposed rules and rates were released in December 2010, generating more than 11,000 comments during the open comment period. The final rules and rates reflect a modified version. In particular, the proposed debit interchange rates included a maximum of $.12 per transaction. The final rates, effective October 1, 2011, will be approximately $.24 for the average transaction, based on a base component of $.21 plus 5 basis points (bps) and a potential one-cent "fraud prevention adjustment." This is still significantly lower than current debit interchange in the U.S.
Overall, in devising the final rates, the Federal Reserve expanded the allowable costs, taking more elements into consideration (e.g., equipment and software costs).
I watched the live broadcast of the meeting, sensing that the Board of Governors felt backed into a corner. Several stated that the Federal Reserve was mandated by law to act on this topic; it was not their choice to act. They also expressed concerns about the impact on smaller banks and credit unions that are exempt from the regulation and they questioned how it will affect consumers. Nevertheless, as Chairman Bernanke stated, the final rules and rates are the "best available solution" given the stipulations of the law.
For complete details, review the press release and related documents. See also previous NAPCP news coverage of this topic within the Industry Regulation section.