Financial industry hits back on debit card fees

The claims mark the latest volley in a long and heated battle between merchants and banks over new restrictions on interchange fees, the fees merchants pay each time a customer's debit card is swiped. It also comes one day before a House Financial Services subcommittee will explore the issue in a hearing.

Under a provision in Dodd-Frank backed by Sen. Dick DurbinRichard (Dick) Joseph DurbinDemocrats turn on Al Franken Minnesota's largest newspaper calls on Franken to resign Democratic senator predicts Franken will resign Thursday MORE (D-Ill.), the Federal Reserve is required to place restrictions on the amount of fees charged. Merchants have long complained the fees exceed the costs of processing the card swipes, and instead serve as profit centers for banks.

The Fed's proposed rules implementing the provision, released in December, cut hard into bank revenues. The central bank proposed limiting fees to seven to 12 cents per transaction, a 73 percent drop from the current 44-cent average, according to the Fed.

While retail groups have touted the provision as helping small businesses, the financial industry report argues that it will primarily assist "giant retail chains," claiming that 1.5 percent of merchants account for 80 percent of debit transaction volume.

While merchants have maintained lower interchange fees will be good for consumers, allowing retailers to lower their prices now that the fees have shrunk, the study maintains there is "no requirement or expectation that retailers will pass along their $14 billion windfall."

Rather, consumers will be on the losing end of the deal, the study says. As bank revenue falls due to the lower debit card fees, banks will have to increase fees elsewhere to make up the difference.

The report calls for a two-year postponement of any rulemaking for two years — under Dodd-Frank, the rules must be finalized by April 21. It also requests a series of congressional hearings about the impact of the provision, with the Government Accountability Office filing a report on the hearing's findings afterward.