News

The debit card interchange fee regulation introduced by the Durbin Amendment to the Dodd-Frank Act went into effect in October 2011. The regulation limits the maximum permissible interchange fee that a covered issuer can collect from merchants for a debit card transaction. In this issue of Economic Quarterly, Richmond Fed economist Zhu Wang reviews the regulation’s first-year impact on different players in the debit card market. Specifically, he highlights the unintended consequences on small-ticket sales. The rising interchange fee on small-ticket sales could affect a large number of transactions. According to the 2010 Federal Reserve Payments Study, in 2009 debit cards were used for 4.9 billion transactions below $5, and 10.8 billion transactions between $5.$15. The former accounts for 8.3 percent of all payment card transactions (including credit, debit, and prepaid cards), and the latter accounts for 18.3 percent. Since merchants may have different compositions of transaction sizes, they could be affected differently by the changes … Continue reading →

Debit Card Issuer Survey Also Finds Decline in Revenue for Small Financial Institutions  Washington, DC – Today, the Board of Governors of the Federal Reserve System announced that it is not proposing any revisions to the debit interchange fee cap provided by Regulation II (the “Durbin amendment” regulation), following the publication of its report on interchange fee revenue and debit issuer costs – the second in a series to be published every two years, pursuant to Section 920 of the Electronic Fund Transfer Act (EFTA). In this report, the Board also finds that interchange revenue has begun to decline for smaller credit unions and community banks that were supposed to have been “exempt” from these price controls.  In the report, the Board writes, “In contrast, the average interchange fee per transaction received by exempt issuers declined 4 percent, from 45 cent to 43 cent after the interchange fee standard became … Continue reading →