June 30, 2011, Written By Lynn Oldshue

After months of heated debate among lobbyists, bankers, retailers and politicians, the interchange fee on debit card transactions has now been finalized by the Federal Reserve.

Currently, the interchange fee averages 44 cents per debit card transaction but recent reforms had proposed the fee be capped at 12 cents. Yesterday, the Federal Reserve ruled that the fee will be 21 cents plus an additional amount to cover overall losses from fraud.

The Fed made one other significant change: these rules will go into effect on October 1 rather than the planned July 21.

In its ruling, the Fed set a base fee of 21 cents per transaction but will also allow banks to assess an additional 0.05% of the transaction’s value to cover overall losses from fraud. The fee can be increased by another $0.01 if banks comply with the Fed’s new standards regarding fraud prevention. Smaller banks will receive an exemption from the swipe fee rules if their assets are under $10 Billion. The Federal Reserve will publish an annual list of banks that are exempt from the swipe fee standards.

Retailers are still the big winners in this final ruling because the average swipe fee on a debit card has been cut by more than half. It is possible, but unlikely, that retailers will pass the savings on to consumers.

Some see yesterday’s announcement by the Fed as a concession to the American Bankers Association and big banks since the cap is higher than anticipated. But banks have still suffered a huge loss of revenue and whenever banks have their revenue reduced, they usually increase existing rates and fees, or introduce new fees. All this eventually comes at the expense of the consumer. Hence, consumers will also be losers in the long run unless retailers pass these savings on in the form of lower prices.

Some banks have already reduced or eliminated rewards for some debit cards. Wells Fargo, SunTrust and U.S Bancorp are among those who have already made significant changes to their rewards programs. Chase is ending its debit card reward program in July.

The Fed’s rules are part of the 2010 Dodd-Frank financial-overhaul law, and the changes only apply to debit cards.

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The information contained within this article was accurate as of June 30, 2011. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.

About Lynn Oldshue

Lynn Oldshue has written personal finance stories for LowCards.com for twelve years. She majored in public relations at Mississippi State University.
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