Study: Debit fee limit hasn't hurt small banks

When federal bank regulators last year capped the amount big banks can charge per debit card swipe, there was widespread concern the reform would hurt small banks and credit unions.

Turns out, the cap on debit card swipe fees has not hurt the small lenders, who are exempt from the cap, according to a new Federal Trade Commission report.

The FTC report concludes that Visa and MasterCard -- the payment card network companies -- have not taken any steps "to diminish the ability of small banks and credit unions to successfully compete with large financial institutions in the debit card issuance market."

The findings echo an earlier report by the General Accountability Office that concluded "community banks and credit unions have not, on average, experienced a significant decline in their debit interchange fees as a result of the Federal Reserve's implementation of section 1075 of the Dodd-Frank Act."

The FTC report, out Wednesday, was issued to the Senate Appropriations Committee. It did not discuss the impact of the debit card swipe fee cap on retailers, another area of concern.

Doug Kantor, counsel to the Merchants Payments Coalition, said the FTC's report confirmed what his organization thought all along, "which is that the exemption for small banks has worked fine and those banks have a competitive advantage now."

The debit swipe fee cap applied to credit card companies and large banks with assets above $10 billion. Banks and credit unions below that threshold were exempted from the cap.

"I think it's absolutely too early to tell," MacKay said. "I think definitely the jury is still out."

The FTC report also notes it has opened an investigation, along with the U.S. Department of Justice antitrust division, into whether Visa or MasterCard may have broken the law by disrupting a merchant's right to choose which network it wants to handle its transactions.

While it created an uproar when it was passed, the cap on debit card swipe fees has faded from public view. The swipe fee battlefront has now shifted to credit cards.

Best Buy Co. Inc. and Target Corp. are among the group of retailers fighting the proposed $7.25 billion antitrust settlement involving Visa Inc., MasterCard Inc., the country's biggest banks and millions of retailers over the credit card fees retailers must pay.

The opposing retailers argue the settlement doesn't do enough to rein in high credit card processing fees, and restricts their ability to sue in the future.

Swipe fees for debit cards and credit cards combined totaled more than $50 billion in 2011, more than $400 per U.S. household, according to the Merchants Payments Coalition, which says U.S. merchants pay the highest such fees in the world.