The Federal Reserve Decides To Reverse Initial Decision To Lower Debit Card Interchange Fees

In a surprising act the Federal Reserve overturned its earlier decision made back in December of 2010

. The act known as the Durbin Amendment was originally presented to the board by Illinois Sen. Richard Durbin, who sponsored the interchange fee legislation. For years now the shift has been to use a debit or credit for nearly all transactions leading the way for large banks to generate enormous amounts of revenue through charging fees to credit card merchants and consumers.

Upon the initial approval of the amendment the Board of the Federal Reserve had this to say, "The Board is requesting comment on two alternative interchange fee standards that would apply to all covered issuers: one based on each issuer's costs, with a safe harbor (initially set at 7 cents per transaction) and a cap (initially set at 12 cents per transaction); and the other a stand-alone cap (initially set at 12 cents per transaction). If the Board adopts either of these proposed standards in the final rule, the maximum allowable interchange fee received by covered issuers for debit card transactions would be more than 70 percent lower than the 2009 average, once the new rule takes effect on July 21, 2011."

Fast forward six months when the Fed has decided to reverse its ruling and instead double the rate they initially promised of 12 cents to 24 cents per transaction. Even with the new ruling credit card merchants have been able to lower costs from a high of 44 cents per transaction to 24 cents, certainly a welcomed improvement from before. This reversal which maintains a significant lower rate than before is still twice as high as previously vowed by the Federal Reserve.

Credit card processors need not worry, the new lower which is already in effect is a minor achievement for small businesses against big banks and big government. Ensure that your credit card merchant processor is working with you to give you the best rates possible. To compare and contrast rates visit, www.creditcardmerchantprocessor.com. At a time when more and more business is done using plastic and other various forms of payments other than cash, merchants have no choice but to pay the fees demanded by banks.

For those businesses out there reluctant to convert to accepting electronic forms of payment because of the high costs of fees can reconsider now with the lower rates. With the recent turn in the governments outlook on spending and consumer well being this may not be the last we here from the Federal Reserve on the issue of credit and debit card fees.

by: eric bernard

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