Fed surprises markets with watered-down interchange caps
30 June 2011 | 7731 views | 1
Shares in major US issuing banks and card schemes moved up late Tuesday as the Federal Reserve issued a watered-down take on the Durbin Amendment on interchange fees, setting the cap at 21 cents per transaction, rather than the 12 cent ceiling proposed in earlier consultations.
Under the final rulings, issuers may charge up to 21 cents per transaction, plus an ad valorem component of up to five basis points of the transaction value, and an additional 1 cent per transaction charge to reflect a portion of fraud losses.
The new rates, which would lead to a more modest 50% cut in issuer revenue, rather than the 75% reduction originally expected, come into effect from October.
The ruling also introduces more competition in PIN-debit routing, insisting that issuers enable two unaffiliated networks for electronic debit transactions, and prohibiting interference in merchant network choices.
The Fed said it had fielded more than 11,000 comments during an eighteen-month consultation on the proposed rule changes.
But, the US central bank has come under fire from merchant and consumer groups, who believe that it has caved into intense lobbying from its banking constituency.
National Retail Federation president and CEO Matthew Shay, comments: "American consumers suffered a major loss today. We are extremely disappointed that the Federal Reserve chose to be influenced by special interests and ignored the will of Congress and American consumers. While the rate will provide modest relief, it does not go far enough."
Analysts meanwhile, issued a string of buy recommendations for stock in Visa, MasterCard and major issuing banks, which rose as markets revised earnings guidance upwards in light of the new rules.