FIs Hit Back at Merchants Over Inflation's Role in Swipe-Fee Debate

Financial institutions are hitting back at retailers over which side is being harmed by inflation — part of their long-running fight about the future of interchange fees.

Under the Durbin amendment, which was part of the Dodd-Frank Act of 2010, banks and credit unions with less than $10 billion of assets are exempt from a cap on debit-card interchange fees.

But that asset threshold has never been adjusted for inflation, the Electronic Payments Coalition noted this week. Based on 2011 dollars, the current cutoff is now $7.7 billion, according to the group, whose members include both banks and card networks.

“Many credit unions and community banks must now adhere to the interchange cap, though they would have been exempt if the asset limit were adjusted for inflation,” Jeff Tassey, chairman of the board of the Electronic Payments Coalition, said in a press release Wednesday.

“Artificially capping interchange, and not adjusting the cap for inflation, reduces the funds available for smaller financial institutions to provide critical banking services like card rewards and data security for customers as well as risk and fraud protection for merchants,” Tassey added.

Merchants have seized on the highest inflation rate in 40 years to argue that so-called swipe fees on debit and credit card purchases are too high. Because the charges, which retailers pay to banks, are capped based on a percentage of the transaction size, they rise as price tags climb.

But the Electronic Payments Coalition cites data saying that the credit-card interchange rate, which is unconstrained by the Durbin amendment, held steady at 1.8% between 2016 and 2021. Visa and Mastercard hiked one component of those fees earlier this year.

The debit-card interchange rate declined from 0.79% to 0.78% between 2014 and 2019, according to the coalition.

On Thursday, the Independent Community Bankers of America, which represents small banks, also expressed support for the idea of raising the $10 billion-asset threshold.

“Given the current high inflationary environment, small financial institutions that were never intended to be in scope are now subject to these artificial price controls,” Nick Denning, senior vice president of payments industry relations for the group’s payment subsidiary, said in an email.

“Revenue tied to interchange continues to enable community banks to offer critical banking services like card rewards programs and data security," Denning said. "Meanwhile, historically high inflation rates are resulting in cost pressures tied to administering and delivering these critical services and capabilities for consumers.”