Washington, D.C. — In response to the news that the Federal Reserve Board of Governors voted to lower the amount that debit card issuers can charge merchants to process customers’ transactions from the current cap from 21 cents per transaction to 14.4 cents per transaction, the American Economic Liberties Project released the following statement.

“While this is certainly a welcome reduction in debit card swipe fees for small business owners, it simply doesn’t go far enough. Congress ordered the Fed to ensure that swipe fees are ‘reasonable and proportional,’ but even after this reduction, big banks can continue charging merchants nearly four times their costs,” said Shahid Naeem, Senior Policy Analyst at the American Economic Liberties Project. “The Fed must go back to the drawing board and significantly lower the fee cap to get closer to actual transaction costs.”

Today, debit cards are the most popular non-cash form of payment in the United States, with big banks profiting from fees charged to merchants like restaurants, grocers, and convenience stores to process customers’ debit card transactions at their businesses. The 2010 Dodd-Frank Act constrained the amount that issuers could charge merchants on debit card transactions, also known as interchange or “swipe fees.” Congress ordered the Fed to cap swipe fees at a “reasonable and proportional” cost of collection in order to prevent them from becoming a junk fee profit center.

However, today debit card swipe fees have become just that. According to the Fed’s own most recent data, falling costs now mean that the average debit card transaction costs just 3.9 cents to process. Today’s current cap of 21 cents means that merchants are being overcharged more than five times the costs of facilitating the transaction. Even with the new 14.4 cent proposed cap, banks would still collect around 3.7 times the transaction’s processing costs.

The Fed’s actions are part of a larger Biden Administration focus on eliminating junk fees across the economy that harm working Americans. The move follows related pressure to lower credit card swipe fees. That campaign backs the Credit Card Competition Act, new legislation aiming to slash credit card swipe fees by introducing fair competition in credit card payment networks.

Read Economic Liberties’ report “Myth vs. Fact: The Credit Card Competition Act (CCCA) of 2023” here.

Learn more about Economic Liberties here.

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The American Economic Liberties Project works to ensure America’s system of commerce is structured to advance, rather than undermine, economic liberty, fair commerce, and a secure, inclusive democracy. Economic Liberties believes true economic liberty means entrepreneurs and businesses large and small succeed on the merits of their ideas and hard work; commerce empowers consumers, workers, farmers, and engineers instead of subjecting them to discrimination and abuse from financiers and monopolists; foreign trade arrangements support domestic security and democracy; and wealth is broadly distributed to support equitable political power.