Retailers are paying significantly less every time a customer swipes a debit card under a rule capping the fees that banks are allowed to charge.
The Federal Reserve says in a report Tuesday that the average fee paid by merchants for debit card transactions covered by the rule was 24 cents in the fourth quarter of 2011. That compares with an average of 43 cents before the Fed's rule took effect Oct. 1.
The rule was mandated under the 2010 financial overhaul law. For most transactions, banks can charge merchants a maximum 21 cents for each debit card transaction plus an additional 0.05 percent of the purchase price to cover fraud protection costs.
Transactions using debit cards issued by banks with less than $10 billion in assets, as well as some prepaid debit cards, are exempt from the cap.
The average fee paid by merchants for those exempt transactions remained at 43 cents in the October-December quarter, the Fed found. Overall debit card fees _ for transactions both covered and exempt from the cap _ averaged 30 cents.
The Fed also said that as a result of the cap, the gap narrowed between fees on debit card transactions requiring customers to sign and those requiring a personal identification number. Fees on signature transactions covered by the rule averaged 24 cents in the fourth quarter, close to the average for PIN transactions of 23 cents. That compares with an average 59 cents for signature transactions and 34 cents for PIN transactions from Jan. 1 to Sept. 30, 2011.
The cap was the first limit ever on debit card fees.
Before the Fed set its level last June, merchants had said that reduced fees would allow them to lower their prices for consumers. Banks, on the other hand, had warned that a limit on what they can charge retailers would force them to cut back on other services, such as free checking and rewards programs.
A coalition of retail groups sued the Fed in November, asserting that the regulator ignored the law by setting too high a cap on debit card fees.
The National Retail Federation and other groups said the Fed buckled under pressure from bank lobbyists when it set the cap, which is significantly higher than the Fed's initial proposal of 12 cents.
Mallory Duncan, senior vice president and general counsel of the NRF, said Tuesday that the Fed report shows that banks "rushed straight for the cap and turned the cap into a floor."
"We believe that the numbers for the banks are too high," Duncan said in a telephone interview. Still, he added, the fees paid by retailers are an improvement over the "monopoly prices" that they were charged before the cap took effect.
Frank Keating, the president and CEO of the American Bankers Association, said in a statement that the main beneficiaries of the debit cap are "big-box retailers who want to reap the benefits of our nation's payments system without paying for it or passing along their savings to customers as promised."