The US Federal Reserve is expected to announce a proposal as soon as Thursday to slash debit card swipe fees by 50 to 60 percent, according to a report in the New York Post.
The proposed cut, while steep, could be seen as a victory for the banks because financial institutions were bracing for a drop of as much as 80 percent in swipe fees -- the money banks charge merchants for using debit cards.
Continue Reading Below
"I'm hearing a lot suggesting the Fed is cushioning the blow to the banks," a person close to the situation said Wednesday.
The Dodd-Frank Wall Street Reform and Consumer Protection Act mandated that the Fed study the current swipe fee rate, which is roughly 1.35 percent, to ensure it covers only "reasonable and proportional" expenses.
The swipe fee became a hot button issue for retailers, who complained it was too high for the risks undertaken by the banks. The average household currently pays an estimated $200 a year on goods because of debit card interchange fees.
Banks would still lose $10 billion to $12 billion in revenue from a 50 to 60 percent reduction, much of which is straight profit.
The Fed will vote Thursday on a staff proposal for interchange fees, and then there will likely be a 60 to 90 day public comment period. New rules take effect July 21.
A bank source said he believed the dialogue with the Fed over interchange fees is now less antagonistic than it was before the midterm elections.
"This isn't a win for banks -- it's less of a loss," he said.