Interchange Fee Limit Could Come at Federal Level

Published

January 16, 2018

Credit.com is the only company of its kind to be founded and run by leading credit experts including journalists, authors and consumer advocates. We're committed to helping consumers understand and master the confusing world of credit and improve their financial standing by recommending products and actions that are in their best interest.

[UPDATE: Some offers mentioned below have expired and/or are no longer available on our site. You can view the current offers from our partners in our credit card marketplace. DISCLOSURE: Cards from our partners are mentioned below.]

Because of a private antitrust suit filed by several million businesses large and small against some of the nation’s biggest financial institutions, it’s believed that there could be a dramatic shift in the way companies pay to accept credit card transactions.

The suit, which is slated to go to trial later this year, was filed because merchants believe that Visa, MasterCard and the 13 of the biggest financial institutions in the country are keeping credit card interchange fees higher than they need to be, according to a report from CNBC. Some analysts say that, instead of letting the case go before a judge, it could mean as much as hundreds of billions of dollars in settlements. This could be preferable to banks because some now believe that the judge would institute a limit on the amount payment processors charge for accepting credit card transactions, one as low as 0.5 percent of a purchase’s total value.

That’s even with the credit card transaction fee cap that’s in place in Australia, but still higher than the one allowed in the European Union, which stands at just 0.3 percent of the purchase value, the report said.

The new cap fee, if it were to be imposed, would be a significant decline from the current rates charged by payment processors, which averages between 1.75 and 2 percent of a purchase price, the report said. And analysts say that a 75 percent drop in these interchange fees would cost many of the nation’s credit card lenders billions of dollars annually on top of the significant hit they already took when the federal government imposed a limit on debit card transaction fees. That limit stands at 21 cents per purchase, rather than the average of 44 cents when the charges were allowed to be based on a percentage of the transaction’s value.

That rule, part of the Durbin Amendment to the Dodd-Frank Act, is what banks say led them to charge higher credit card interchange fees as a means of making up lost revenues, the report said.

Interchange fees are often built into prices for all customers, not just those paying with a debit or credit card. Retail industry representatives argue that businesses would be in a position to reduce prices if they were being charged less for accepting card purchases.