Fed announces final debit Interchange rules

Breaking Interchange NewsAt the Federal Reserve meeting today the final debit card rules where announced and the debit Interchange cap has been raised to 21 cents plus 5 basis points per transaction (not to exceed a sum of these two components). The initial proposal in December called for capping debit Interchange fees to 12 cents per transaction. After taking eleven thousand public comments, the Fed has adjusted this cap to include a “fraud prevention adjustment” in order to compensate for the costs that banks and financial institutions incur to maintain security against fraud.

The rule was slated to take effect on July 21, yet with less than one month to put in place all the mandated provisions, more time is required to implement these changes. For example, it will take months for the computers used by issuing banks, Visa, MasterCard and the payment processors and networks that process debit transactions to be coded to recognize new categories of debit cards that meet both the new requirements and the exemptions. The new effective date is scheduled for October 1, 2011, barring any successful legal challenges.

While we wait for these final rules to be implemented, small businesses and midsized merchants who have not done so already should make sure they are priced at direct card Interchange pass through. Hint: Get a merchant Interchange rate quote and insist on a month-to-month agreement. If you are on a tiered or bundled or one rate pricing plan, you will not be able to take advantage of these government mandated lower debit Interchange rates.

Also note that Interchange fees are only one component of delivering merchant services. We expect that there will be lots of marketing gimmicks quoting “rates as low as” offers in the coming months. Ignore all the marketing hype; be sure to compare the quote to the analysis to your paperwork; and double check the math on any savings analysis. And remember, to avoid a costly mistake, you must take the time to read not just the application but all the fine print of the terms and conditions carefully.

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