Proposed debit card regulations have pitted the nation’s financial institutions against retailers — but consumers could be the ones caught in the middle.

At issue is more than $12 billion in annual debit card processing fees, money that merchants pay to banks to process debit card transactions.

The regulations, part of the Dodd-Frank legislation that added oversight to financial institutions, have proven unpopular with banks and credit unions of all sizes.

However, merchants’ associations claim the current fees — which average 44 cents for every transaction — are unfair, and the regulations do not go far enough to address the problem of retailers paying fees for something that in the past was free. The proposed fee under Dodd-Frank is 12 cents per transaction.

Banks claim they will lose billions, and those losses will be passed along to banking customers.

“We figured it out, and we’ll lose about 40 percent of our revenue from these fees,” said Karin Kovalovsky, vice president of marketing and communications at Air Academy Credit Union. “That’s pretty significant.”

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Financial institutions are already looking at ways to offset the loss of revenue. They are considering adding an annual fee to the debit cards, ending free checking accounts and putting limits on debit card transactions.

The regulations carve out financial institutions with less than $10 billion in assets — but that isn’t practical and will lead to discrimination, she said. Air Academy would fall under the exemption, but the credit union isn’t confident that it can still charge the higher swipe fees.

“How will merchants know whose card is going to be processed at what rate?” she asked. “And once they do figure it out, they just won’t take the cards that are processed at the higher rate.”

But the retail industry believes banks are merely muddying the waters, because both Visa and MasterCard have agreements in place with merchants that require them to accept all Visa and Master Card debit cards, if they accept any.

“The banks have put a lot of misleading information out there,” said J. Craig Sherman, vice president for government affairs at the National Retail Federation. “This is the most misleading. Small banks won’t have the fees lowered, only the top 100 banks will.”

The idea of lowering the swipe fees came in a last-minute amendment to banking regulation laws by Sen. Dick Durbin. The uproar since then has caused the Federal Reserve to delay issuing final rules, and Congress to consider a bill to delay them for a few years.

While financial institutions would like to see the amendment repealed, they are hoping for more discussion before the new regulations are in place in June.

“They passed this amendment with no study, no discussion, not a single hearing,” said Don Childears of the Colorado Banking Association. “They didn’t consider everything.”

Actually, that isn’t true either, Sherman said., noting that Congress held six hearings on swipe fee reform and it was argued during floor debate.

For their part, banks believe the fees are necessary to counter fraud, Childears said.

The high cost of fraud is one thing left out of calculations, Childears said. Merchants accept the risks of fraud when they accept checks. But banks take 100 percent of the fraud risks with debit cards, and Childears said combating fraudulent use of debit cards can be very costly.

“The merchants aren’t always careful with information, not the way banks are,” he said. “More than 90 percent of loss of credit or debit card numbers come from merchants. Banks know to be more careful, they have to be. If we don’t have trust, we can’t do business.”

Sophisticated hackers can duplicate cards, he said, running up thousands in fraudulent purchases. Stores take none of the responsibility for that fraud.

Another group left out of Congress’s considerations, low-income customers, who banks admit will bear the brunt of the fees charged to replace the lost revenue, he said.

“We’ve worked to get them into the banking system,” Childears said. “To get them checking accounts, savings accounts. And we operate free checking accounts at a loss. But with these regulations, the fees banks will charge will push them right out of the system — and back into the hands of payday lenders.”

Idle threats, said the NRF’s Sherman.

“Banks are bluffing,” he said. “They keep saying they’re going to charge these fees, during every single regulation during the past two years. They never have. They won’t — it won’t keep them competitive.”

In the early days of debit cards, banks were anxious for retailers to accept the cards, and actually paid retailers who did, Sherman said. Now, they are charging fees for every transaction, and retailers believe it’s simply a way to make money.

“Basically, a debit card is just like a paperless check,” he said. “And there are no fees to process checks. Our stance is that debit cards should be handled the same way. But banks see it as a way to make money from merchants.”

44 cents

Average swipe fee

12 cents

Fee charged once Durbin amendment takes effect

73 percent

Drop in revenue for banks


Number of banks subject to Durbin amendment


Number of banks nationwide

$12 billion

Amount of swipe fees banks receive nationwide