Interchange Fees Refresher

Recently, interchange fees have resurfaced in the news and a refresher on the issue — and why it matters to credit unions — is needed.


When a customer uses a credit or debit card to pay for a transaction, the merchant pays an interchange fee, or “swipe” fee, to the card-issuing bank.

Interchange fees cover a variety of expenses:

  • system improvements;
  • online transactions;
  • data security;
  • card production; and
  • the cost of customer service.

Interchange fees can vary significantly on a number of circumstances, including:

  • whether or not a card was present during the transaction;
  • whether the data is complete;
  • the category of the merchant;
  • whether the card is credit or debit;
  • the brand of the card; and
  • whether the owner of the card is an individual, business, or other entity.

The Durbin Amendment — section 1075 of the Dodd-Frank Wall Street Reform and Customer Protection Act of 2010 — directed the Federal Reserve to regulate debit interchange fees. The Federal Reserve is directed to:

  • set an interchange fee limit that shall be reasonable and proportional to the cost incurred by the issuer with respect to the transaction;
  • consider transactional costs, not fixed costs; and
  • adjust regulations to account for fraud prevention.

The Federal Reserve in 2011 issued a final rule to set the maximum interchange fee for debit transactions at 12 cents per transaction, plus 5% of the transaction value, with an upward adjustment of one cent allowable in some cases to account for fraud prevention. Of note, card-issuers with less than $10 billion in assets are exempt from the rule.

Where NAFCU Stands

NAFCU has argued that the Durbin Amendment should be abandoned while envisioned to help consumers, the Durbin amendment has instead lined the pockets of big-box retailers, with little evidence of price cuts for consumers or benefits to small merchants. The regulatory burden and loss of revenue for credit unions and banks has led to industry consolidation and the difficult choice to charge for services that were once free, such as checking accounts.

Credit unions are committed to exceptional member-service and as such must be able to make a reasonable return on interchange fee income in order to continue to provide important consumer financial services.

Recent Developments

The Federal Reserve is beginning to revisit its debit interchange policy and congressional chatter around the Durbin Amendment is picking up steam.

While the Fed’s proposal only seeks to clarify routing exclusivity under the regulation, NAFCU argues that it will do little to aid American consumers who are impacted by higher costs.

In addition, a recent lawsuit filed against the Fed by North Dakota-based associations representing retailers argues that the central bank should lower the cap on interchange fees for debit card transactions. NAFCU has an action alert available on its Grassroots Action Center for credit unions to join the association’s advocacy against efforts to lower interchange fees and contact lawmakers directly on the issue.

Now is the time for policymakers to recognize that the biggest proponents of the Durbin Amendment are those that have failed to provide compelling evidence of their core argument regarding interchange.

NAFCU will continue to advocate against efforts that would undermine credit unions’ interchange income and limit their ability to offer their 124 million members affordable products and services.

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