Banks and Businesses get "swiped" over Fees

Posted by OnCourse Staff April 6, 2011 4:21pm

Photo Credit: Intuitives

Last week, the battle between banks and businesses continued over rules on whether the fees charged by banks should be limited when processing debit card transactions.

The regulation of swipe fees (also referred to as interchange fees) is a big concern for the financial services industry, which is lobbying to ensure Congress delays the Dodd-Frank rules. These new laws, as proposed by the Dodd-Frank financial reform law, insist that such fees are “reasonable and proportional to the actual cost incurred.” Merchants are continuing to lobby against the increase in “swipe fees”, stating that such costs are creating a smaller profit margin with respect to their businesses. [New York Times]

As a result, retail servicers are aggressively pushing federal officials to regulate the fees paid to institutions upon each debit card transactions. In contrast, big banks argue that, per the preliminary rules, no more than 12 cents per transaction will be earned in profits, which is deemed too low. As a result, public comments  have surfaced.

So how does this affect community banks? Many commenters fear that community banks and credit unions may soon be faced with similar concerns, as many independent merchants rely on the stability of the small financial institutions.

Yet, in an article from the Wall Street Journal, the FDIC are diligently working to provide protection to the community banks and the credit unions. Federal Deposit Insurance Corp. Chairman Sheila Bair stated last Tuesday that the Dodd-Frank Act "is a good law and one which I think will strengthen, not weaken, community banks," she said.

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