Debit interchange fee cap legislation was promoted by retailers as consumer-friendly policy before it was enacted last year, but consumers actually have paid an average of 1.5% more for certain goods since the interchange fee cap implementation, an Electronic Payments Coalition (EPC) study has found.
The Federal Reserve Board's final rule implementing the interchange law capped large issuer debit interchange fees at 21 cents. An additional five basis points per transaction may be charged to cover fraud losses, and an extra penny may be charged by financial institutions that are in compliance with established fraud prevention standards. Most credit unions are exempt from the fee cap.
To gather data on the interchange cap's impact on consumers, EPC researchers made 36 shopping trips to 18 stores across the county, purchasing a consistent list of products at each store. One round of purchases was made in September 2011, just before the interchange cap took effect, and another round was made late last month.
Overall, the EPC found that 67% of retailers visited either increased their prices or kept them the same. Specifically, the EPC found that after the interchange cap implementation, shoppers paid on average:
- Eighty cents, or 5.4%, more for the same items at a Walmart in Portland, Maine;
- One dollar, or 2.6%, more for the same items at a 7-Eleven in Washington, D.C.;
- Thirty cents, or 2.9%, more for the same items at a Walgreens in Boston; and
- $2.22, or 6.6%, more for the same items at Home Depot in Atlanta.
The EPC noted that these increased prices come as retailers save billions and debit card issuers are forced to make up for lost revenue. "With a wink and a nod, giant retailers promised to lower prices for their customers if Congress passed [interchange legislation]. One year after implementation, retailers have taken home $8 billion while many of their customers pay more at the register," EPC spokeswoman Trish Wexler added. The EPC study was covered in Washington political paper Politico's Morning Money column.
Credit unions and community banks also are being harmed by the interchange regulations, the Credit Union National Association and other finance industry partners said in a recent letter to Congress.
The letter noted that a U.S. Government Accountability Office (GAO) study released in September--which found smaller community banks and credit unions, supposedly "exempted" from the fallout of this legislation-- have instead seen interchange revenue decreases of 5% in the first three months following interchange fee cap implementation.
The letter also noted that credit unions and community banks are struggling to maintain viable debit programs, and have had to raise their fees in some cases. "The GAO further concludes that even more harm to community banks and credit unions is likely as the marketplace evolves," the letter added. (See September 24 News Now story: Interchange cap not helping consumers: CUNA, trades)