Fed to Propose Lowering Debit-Card Swipe Fees | Hacker News Reader

Fed to Propose Lowering Debit-Card Swipe Fees

wsj.com

55 pointsimpish920872 comments

I just wish that merchants could pass the interchange fees on explicitly to customers, and so the folks who are paying with cards that have high-interchange fees pay more. I'm sick of subsidizing other people's airline mile because Target charges us the same price no matter how we pay, even if I'm using a cheaper payment method. My understanding is that the credit card companies as part of their merchant requirement prevent that, and it'd be nice to see the government explicitly prohibit that sort agreement. (Some stores creatively work around this by providing a "cash discount" or charge a 'convenience fee')

Maybe the card with the higher interchange fee is worth it for the charge dispute or whatever, but if you want that piece of mind, pay for it your damn self.

I think there's some additional complications that different cards charge different interchange fees and merchants don't find out what that fee is until well into the transaction, so maybe this is harder to do that I realize, but that'd be another spot for some good regulation to make the marketplace more transparent.

> I just wish that merchants could pass the interchange fees on explicitly to customers

They can do this in almost all of the US, although a few states have limitations.

Here's a good list of states and what their restrictions are on charging more for credit cards: https://www.usatoday.com/money/blueprint/business/credit-car...

> I'm sick of subsidizing other people's airline mile because Target charges us the same price no matter how we pay

You should actually love this because fees paid by the merchant are pure gravy for you as the customer. If they could charge more and get away with they should just do that. Externalizing the interchange costs would be a huge win for merchants because they just got free money while keeping the sticker price the same. All the benefit of hidden fees without the needing to hide it part, just like taxes. It would do nothing except make everything 2%ish more expensive for card users while you gain nothing. If you've ever wondered why companies push so hard against requiring display prices to include tax this is why. It's not the high cost of label printing, it's that they would just have to eat the 7% because they can't just hike prices without consumers reacting to it.

Have you never noticed that despite the fact that different retail outlets take wildly different cuts it never manifests in significant price differences? "Cut out the middleman and buy direct" is often the most expensive way to buy something.

It's complicated because it pushes fees onto the poor, who can least afford it.

Poor people only have debit cards, which have high fees.

Rich people use credit cards, which have low fees.

It would yet again be another situation where the poor pay more than the rich. Which is very often.

My understanding was that debit cards typically have lower fees than credit cards (except for small-value transactions).

Target is a bad example, because they don't charge you the same no matter how you pay. If you use a Target red card you get a 5% discount.

Keep in mind that American Express customers tend to spend more. Stores wouldn’t pay these interchange fees if they didn’t think the added spending is worth it.

Cash also is not free to accept. The cost of handling it is quite significant. Time spent on counts, armored cars, change scams, etc., are all added costs.

In Canada the debit fee is fixed (I think its around 0.10 to 0.40CAD) per transaction, no percentage. That's why you see a lot of places that only accept cash or debit (and not credit cards).

I would be happy as a small SaaS owner and consumer to see those percentage fees disapear. I never have more than 1% cash back on the 3% that CC take.

Square moved to charging a percentage on Canadian debit swipes last month:

> Square’s processing fees are 2.65% per card present transaction, 2.9% + 30 cents per paid Square Invoice and Square Online sale, 3.4% + 15 cents per manually entered transaction and INTERAC debit cards are processed at 0.75% + $0.07 per tap or insert

Unsure if this is pushing new Interac costs to buyers or a profit grab. It was just 10 cents flat per swipe, so anything over $4 and you’re worse off.

This is bad. Low debit card fees make low-income people unbankable.

https://kunle.app/feb-2022-children-of-durbin.html

EU has a cap on card fees, and low-income people have no problem opening bank accounts. They do get totally shafted on overdraft fees tho.

It's not about opening accounts, it's about monthly fees. If banks can't make money from debit card transactions they'll have to charge account holders directly.

That sounds more like you need to give poor people more money. Not even that much, just a little.

Not that you need to fight caps on card fees.

In the UK, bank accounts rarely cost anything and debit cards come for free as standard. Banks are still profitable.

I would hazard a guess that most banks in fact make most of their money through lending your funds to other people.

I know this is highly EU-country dependent, but paying monthly fees for banking in USA is incredibly easy to avoid, but harder to avoid in EU.

Could say the rich subsidize the poor in USA (by keeping more in 0.0001% interest checking accounts and more card swipes per month).

Debit cards don't involve any debt. There's no reason lower fees would stop them from being able to get accounts, although some banks may protest.

The article the commenter linked is almost entirely about debit cards. The bank has to make money somehow to pay for things like fraud and auditing.

Make money on savings interest and mortgages?

which poor people don't have

There are plenty of ways for banks to make money off poor people. Some banks might defect, but the banking market is competitive, others will step in.

In the EU, debit cards (with EU-capped interchange, and no debt mechanism) are the majority, and there's nothing that points toward that limiting low-income populations' access to banking or card networks.

Can't speak here for entire EU, only France, but opening a bank account or getting a basic debit card requires no minimum proof of income, and typically have no fees associated. No financial barrier to entry for any population segment.

They might make the gigantic too-big-to-fail banks want to turn away from lower-profit customers but credit unions are absolutely a thing. In my area, several credit unions offer payment accounts--with debit cards and without a monthly fee--for people who have had accounts closed due to overdraft or who have an ITIN instead of a SSN.

I'm not really moved by "if we don't let the TBTF banks charge whatever they want, they might not like us". We have not-for-profit institutions and community-focused banks for a reason. At bottom, we should introduce postal banking like a lot of over countries to get ourselves out of this reliance on those banks.

Your link literally claims that small community banks have lobbys strong enough to escape the regulation, as if big banks had less lobbying power. Honestly it's not that often to see a blog post discrediting itself so quickly…

Also, since the interest rate has risen a lot since then, the main argument in it simply disappeared.

That article itself points out why it doesn't necessarily apply today:

> Banks make money off consumers by a mix of payment revenue (typically interchange, wire fees etc), net interest margin (the spread between what banks earn lending money and what they pay as interest on your checking and savings accounts) and other fees (monthly fees, dormant account fees, overdraft fees etc). Over the last 2 decades, as interest rates have hovered at all time lows, the mix of revenue from depository consumer banking has shifted heavily to payment & fee based revenue, and less on net interest margin. In addition, if you were a bank customer that lived paycheck to paycheck (or otherwise had high income and expense volatility) then your bank couldn’t rely on net interest margin to monetize you anyway, and relied much more heavily on fees.

Interest rates are no longer at an all time low, so the shift in how banks make money is already underway. The article also mentions high infrastructure costs for banks ($36/year/account), but many banks (and especially credit unions) have had massive migrations over the last five years on to newer infrastructure.

If anything, this article makes it clear to me that there are a lot of systems in place here beyond just the interchange fee.

Paycheck to paycheck customers have low bank balances, so the interest rate doesn't matter because there's no principal. The banks could have them as customers because of debit card fees paying the costs. But they became unprofitable overnight when the Durbin amendment went into effect, which is why banks started to implement monthly fees (in addition to overdraft fees etc).

Yes, credit unions and neobanks can charge higher swipe fees so they can bank them. But under this new proposal, maybe not anymore.

such a bad take

There is also a supreme court case about if the fed has the power to do this without a law.

The power to propose it? Or the power to force it?

The power of an executive branch agency to propose new rules. (ie new rule making without an act of congress).

Proposing new rules isn't making new rules though? I would be surprised if anyone isn't allowed to propose new rules.

Proposing a rule in this context is a step in the process of enacting it, not offering up a suggestion to Congress.

Okay but my question is still the same - is that step itself possibly illegal? I would think only the final step is what could be illegal.

The term "proposed" is used here where an executive branch agency gives notice to the federal registrar, waits the time needed for public comment, pretents to "ack" the public comments and passes said rule to then enforce. ie a law that pretty much bypasses congress.

the supreme court seems interested in looking at how much power can congress give to the executive branch.

see: https://www.federalregister.gov/uploads/2011/01/the_rulemaki...

Here's more info on the case for others interested. https://thehill.com/business/4231072-supreme-court-agrees-to...

Government agencies should only be able to do what congress defines in law.

A great example is ATF abusing the power to redefine what a pistol/rifle/machine gun are multiple times in the past decade. This leads to people who were previously compliant with the law, with prior written approval from the ATF, now are not compliant with their new definition and could face prosecution. All without any new law being passed, all being done by political appointees and bureaucrats.

Government agencies exist because congress is lazy and writing good regulation on every topic under the sun is hard. Congress describes what they want to happen, get their brownie points either from constituents or from rich donors, and move on. Regulators are then left with the actual work of creating the rules and implementing the systems that carry out that will.

The amount and degree of interpretation they are allowed to do is obviously up for debate (and has been litigated thoroughly and repeatedly) but its really silly to say "just do what congress says" as if congress doesn't constantly defer its responsibility for creating regulations to the executive.

Congress doesn't work that many days a year. Around 100 I think, lots of half days. They don't get to say anything is too hard until they work as much as a fast food cashier.

> They don't get to say anything is too hard until they work as much as a fast food cashier.

It actually turns out that they do get to say this

I was just teaching my 4 year old what euphemisms are last night. She had the same confusion.

just having a bit of fun. I completely agree with your comment as a statement of how things should be. My point is that we already can't force congress to do broadly popular things, let alone boring, controversial, difficult, politically fraught things. As a fan of having a functioning government, I think trying to force 535 selfish, rich, politically motivated lawyers to research, write, and vote on hundreds of thousands of pages of passable regulations is a nonstarter.

That's fine but I'm not going to hear calls of "our democracy" if the idea is a unelected permanent government is really in charge beacuse congress refuses to work more than 2 days a week.

> Congress doesn't work that many days a year. Around 100 I think, lots of half days.

You want elected leaders who are given zero days to spend time with their constituents?

In this case, Congress did define multiple times these terms explicitly in the 1934 National Firearms Act, the 1969 Gun Control act, the 1986 Hughes amendment, etc.

ATF's job in this case should be enforcing the existing law, not writing new law with no congressional approval and then enforcing it themselves.

I agree that congress did give them some limited power to adjust to changing times, however I believe that has been abused in recent years to enact backdoor legislation via Presidential order without going through the expected legislative channels. That power should be revoked.

I'm not really familiar with this specific case and you may very well be right that the ATF is overstepping. We already have multiple possible solutions to this problem. Statutory interpretation, congressional approval of cabinet members, or congress passing a new law that eliminates that interpretation are all solutions that are designed into our system. Elections are also a solution to this, although they're probably a bit too coarse to solve individual regulatory issues.

It is impossible to have an executive branch that doesn't interpret the law because the law is just a piece of paper. Determining what level of interpretation is okay is already a part of our system. There is no way to just revoke that power without just collapsing the government.

This post reminds me of the difference between declarative and imperative programming.

It would be interesting to see a review and evaluation of different law and regulation making approaches with their outcomes.

Maybe a better balance would be to have Congress delegate part of the implementation of regulation, but require them to review any major changes beforehand.

I think regulations should not be effective until passed into law, but the law can start when the regulation goes into effect up to two years before it is passed so long as what the law is was published then.

That is the government can create some complex regulation. If you continue to violate their regulation you will get a notice of fine, which you are then expected to put that fine into escrow, if the law is passed you owe the fine, if not you can collect it back (with interest?) in 2 years.

Congress cannot be an expert on every possible regulation that would be needed, that is a good job for hired bureaucrats. However they should be the final stamp on everything those bureaucrats propose.

Congress delegated rulemaking authority to the executive branch in a number of areas and has the power to un-delegate it, but has chosen to not exercise that power. They don't, in part, because that would create a lot of work for Congress, which would interfere with Congress' ability to solicit and deliver on bribes.

The US Constitution invested Congress with the power to write legislation. Congress chose to write legislation that created specific agencies, gave them broad power, and then outsourced fine-grained decision-making power to those agencies. At literally any point Congress wants, it can can revoke that power or adjust it.

Congress generally doesn't do this because it simply doesn't have the bandwidth, and so core government functions would become unscalable. But you can certainly vote for representatives who support this idea, and we could see how the results come out.

> The US Constitution invested Congress with the power to write legislation.

Then why are lobbyists writing so much of it?

> The US Constitution invested Congress with the power to write legislation.

More precisely, the power to pass federal legislation. Anyone can write legislation (I've done it, its fun! [0]), and the Constitution also protects doing this and trying to get it passed [1], but if you can't convince the legislative body with the power to pass it to do so, it has no legal effect.

[0] A couple times as a "what would it look like if we wanted to pursue this" in an state legislative office, other times as part of an extended government-simulation project as part of college coursework.

[1] This is part of the First Amendment right to petition.

+1. especially when the redefinition aligns with a change in administration. there are countless normal rules/regulations that can pass but when it counts as a material/constructive new change, it should come from congress and be an actual law.

Federal Reserve is not a government agency, and no government employees work for it. You can read their employee hiring and benefits and observe it does not follow government hiring process nor government civil service pension. They are a contractor to the government.

I think the case is actually about forcing the fed to lower the rates because merchants think they are unfairly high, not whether they have the right to set the rates, which came from the Dodd-Frank Act.

There's definitely some willing cooperation when Congress pawns off much of it's power to the administrative state, and dodging accountability is not the least among the reasons why (see the lack of single subject bills as another example). But agencies also just walk all over the boundary of the authority granted by Congress too, see West Virgina vs EPA:

https://www.supremecourt.gov/opinions/21pdf/20-1530_n758.pdf

> a supreme court case about if the fed has the power to do this without a law

The Durbin Amendment specifically instructed the Fed to "limit fees charged to retailers for debit card processing" [1]. SCOTUS declined to review in 2015 [2]. I don't see anything on the docket challenging this precedent [3].

[1] https://en.wikipedia.org/wiki/Durbin_amendment

[2] https://www.reuters.com/article/us-usa-court-debitcards-idUS...

[3] https://www.scotusblog.com/case-files/terms/ot2023/

Wow, I had no idea the fees were so high

In the Netherlands, debit card fees are 6 euro-cent per transaction and 0% of the transaction amount. Since debit card do not come with a loan/insurance/fraud protection/chargeback ability, there's only a fixed processing fee and no need to charge fees based on the transaction amount.

Wont FedNow make debit cards obsolete?

Eventually, but that will take time as the scaffolding needed works its way through financial services firms like ACI and FiServ, and POS terminals and mobile apps gain support. In the interim, the Fed can squeeze this drag with regulation.

https://www.axios.com/2023/07/22/fednow-instant-payments-cre...

Non-paywall: https://archive.ph/pdAG5

debit card, not debt card.

This is all political theater legwork done just for one family.

Upside: poor-person debit card use will not subsidize rich-person credit card fees.

Downside: This does not actually help debit card holders. No business on earth will give Debit Card users a discount, it just will, in majority, bankroll rich company profits, which as we all know, has historically had no difference to consumers.

When wallstreet makes more profits, the profit expectation rises, they never hand it back.

This is just continuing to take from the poor but instead of giving it to one rich company, they are giving it to the other rich company. The Walton family is excited about this one.

Edit: Ooh this was spicy. Looking forward to the Top of HN study outcome link stating the above.

> No business on earth will give Debit Card users a discount

IKEA has had a debit card discount for at least 10 years.

As far as I'm aware, that was only at exactly one store. I have never seen that at any Ikea in the US.

Target gives 5% off if you use their "Red Card", which is just a debit card linked to your bank account.

Spec's (a liquor store) offers a cash/debit discount.

Target is not giving 5% off for any debit card though, which they would have to pay significant fees for.

Target gives 5% off for paying with ACH, which Target calls its “Debit Redcard”. You cannot use that Debit Redcard anywhere else, because it is not a debit card in the common vernacular, it is just Target’s way of letting you pay with an ACH transaction.

Redcard is not Debit.

Then what is this? https://www.target.com/redcard/debit-card-application

Marketing using words people understand. It is an ACH payment solution that works like a debit card to the user (Statement: Target-1234: -12.75) but involves zero of the actual debit card issuers or processing systems.

One could think of it as a debit account which drafts from a checking account to keep a non-negative balance. With redemming gift cards and returns its possible for a RedCard to have a positive balance.

I've been grandfathered in the PayPal business debit card @1.5% cash back for transactions without the PIN had it for some ~15yrs. Lifetime earnings in the 100k range. They just recently nixed the auto backup funding source which makes it a pain to use now.

probably one of the greatest personal financial hacks of all time... you better ask somebody

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