The Federal Reserve Board issued a proposal to lower the maximum interchange fee that covered debit card issuers may receive for debit card transactions.

Background: The Fed is required to establish standards for assessing whether interchange fees received by covered debit card issuers for processing transactions are “reasonable and proportional” to certain issuer costs.

Fed Proposal: The Fed’s proposal would adjust the interchange fee cap for debit card issuers with at least $10 billion in assets to reflect changes in issuer costs since the rule first took effect in 2011. It also would establish a regular process for updating the maximum amount every other year based on issuer cost data.

Fee Cap Changes: Among its provisions, the proposal would:

  • Decrease the base component from 21.0 to 14.4 cents.

  • Decrease the ad valorem component from 5.0 basis points (multiplied by the value of the transaction) to 4.0 basis points (multiplied by the value of the transaction).

  • Raise the fraud-prevention adjustment from 1.0 cents to 1.3 cents.

Example: The Fed said the proposal would decrease the maximum permissible interchange fee on a $50 debit card transaction from 24.5 cents under current rules to 17.7 cents under the proposal.

ICBA Response: In a national news release, ICBA expressed deep concerns about the impact of the proposal on community banks and the communities they serve. Citing Fed Governor Michelle Bowman’s statement opposing the proposal, ICBA said the cap puts smaller card issuers at a disadvantage and could cut off access to banking services in local communities—even those served by the community banks that are intended to be exempt from the proposal.

Joint Letter: ICBA and other groups last week urged the Fed to reject merchant requests for further changes to Regulation II. The groups called on the Fed to allow the groups to rebut merchants’ inaccurate assertions and to recognize community banks’ rising costs and falling revenues due to Reg II rules.

Previous Update: The Fed earlier this year enacted updates to its rules specifying that issuers should enable—and allow merchants to choose from—at least two unaffiliated networks for card-not-present debit card transactions, such as online purchases. ICBA called on the Fed to reconsider that proposal in a 2021 comment letter and 2022 joint letter with other groups, and it urged the agency to delay the effective date in a separate letter earlier this year.

Outlook: Comments on the proposed rule are due within 90 days of publication in the Federal Register. ICBA is reviewing the proposal and will submit comments.