Controversy continues to swirl around the all-important debit fee as various factions have strong opinions as to price control regulation itself and the actual cost of swiped debit cards.  Consider the following points:

Banks / cardholding associations - We are against all measures that regulate the fees that we charge.  This form of price control will only hurt our bottom line which will prove to negatively financially impact our customers.  In addition, smaller banks and credit unions who are exempt from this type of regulation may not be able to compete with their larger counterparts as merchants start discriminating against accepting higher priced debit cards.

Retailers / merchant associations - Large and particularly small businesses cannot absorb high debit fees.  We are just trying to make a living and exorbitant processing-related costs take a big bite out of our profit.  We're particularly getting killed on small ticket items (less than $10) and some of us have already decided not to accept plastic.  Moreover, with a lower debit fee, we can pass off some savings to our customers.

Customers - While we want to pay less at the stores we patronize, we don't want to have to pay for lowered debit fees in other ways.  In other words, we don't want banks to stop giving us free checking accounts, eliminate rewards on debit cards, or pay a higher annual fee or credit card interest to make up for any diminished bank profit margin.

Politicians, such as Senator Richard Durbin - We want debit card fees to be “reasonable and proportional” to the actual cost incurred by banks to process the transactions. 

Well, words like reasonable and proportional are subject to interpretation and open to debate.  Such debate and lobbying blitzes have taken place over the last half year, culminating in the decision rendered by the Federal Reserve on June 29th.  Here are the major provision of the Fed's ruling:

A. The swiped debit fee will be set at 21 cents + plus 0.05% of the transaction amount;     

B. The banks will also be allowed to collect an additional 1 cent on each debit transaction to cover the cost of fraud prevention if they meet certain fraud preventative standards.

C. Debit card issuers have to support at least two unaffiliated networks, such as one PIN and one signature network. A card with only PIN or signature capability will have to have at least two unaffiliated networks.  Merchants have the freedom to choose which network to run transactions through.

D. The aforementioned provisions only affect institutions with assets more than $10 billion and go into effect this October 1st.

Although bank officials yearn for the pre-regulation days, they must have heaved a collective sigh of relief as the debit fee cap was originally slated at 12 cents.  Still, 21 cents represents over a 45% reduction to the current, average 44 cent debit fee.  Retailers conceded that the Federal Reserve took steps in the right direction but, in their estimation, the Feds did not go far enough.  I suppose that they were tantalized by the initial 12 cent cap.  Visa and MasterCard's stock went up as the ruling was considered less draconian from their point of view.

Merchants who are on the Interchange cost plus model will already be covered when the new debit fees are instituted.  Those merchants who are on a tiered cost program will wait and see how their processor implements any new debit fee structure.  (Some processors may decide not to lower the debit fee rate.  Of course, retailers are then always free to switch to a processor who will.)