In October 2023, the Federal Reserve Board issued a proposal to lower the maximum interchange fee that a large debit card issuer can receive for a debit card transaction. The due date for comments on this proposal, originally February 12, 2024, has been extended to May 12, 2024. The Consumer Bankers Association (CBA) recently commissioned research on debit card interchange fee limits and the potential implications if the proposal to reduce debit interchange caps is finalized. Nick Bourke, former Director of Consumer Finance at The Pew Charitable Trusts, published a new white paper entitled “How Proposed Interchange Fee Caps Will Affect Consumer Costs.”

The white paper analyzes the initial effects of Regulation II since its implementation in 2011 and estimates the outcome of further reductions to debit card interchange. The key findings from the white paper include:

• Data supports that free accounts became less common, minimum monthly balance rose, and “monthly maintenance fees increased in an amount equal to 42% of the overall reduction in interchange revenue” when bank interchange revenue dropped;
• Economists conclude that it is “virtually impossible” to prove or measure any merchant or consumer savings; and
• Consumers can expect to pay an extra $1.3 billion to $2 billion annually in bank account fees through higher monthly maintenance fees or increases to other service fees.

This week’s Consumer Finance Monitor podcast episode, Understanding the Federal Reserve Board Proposal to Lower Interchange Fee Cap for Debit Card Transactions, features Zarik Khan, Founder of Finsolute Advisors. The episode discusses the impacts of the current debit interchange fee cap, the Federal Reserve Board’s rationale for its new proposal and related study, the proposal’s implications for each of the affected parties, and the potential impact of the U.S. Supreme Court’s pending decision in Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. U.S. Department of Commerce as to whether the Court should uphold or modify the Chevron doctrine.

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