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Department of Justice Investigating Visa’s Post-Durbin Amendment Fees

While recently announcing their quarterly profits Visa also disclosed that the U.S. Department of Justice has requested more information about changes in their interchange pricing structure related to processing debit cards.

According to Visa’s CEO Joseph Saunders, Visa met with the DOJ twice in March providing materials in response to a civil investigative demand, a request to provide information or testimony related the Department of Justice’s investigation, which in this case came from the antitrust division. Information requested by the DOJ included components of Visa’s “new debit strategies,” and a fixed fee Visa is charging merchants. The Fixed Acquirer Network Fee (FANF), which went into effect on the first of April, is charged quarterly to all who accept Visa cards. The amount of the fee is less than five dollars for 80 percent of merchants, but the exact cost is contingent on the merchant’s payment acceptance method, number of locations, Merchant Category Code and other elements. The first round of fees will be collected in July 2012 and, unlike interchange fees, revenue from the Fixed Acquirer Network Fee goes directly to Visa rather than the financial institutions.

After the controversial Durbin Amendment went in to effect the debit card interchange fee was cut roughly in half from about a 44 cent average prior to the interchange price cap. Financial Institutions with less than $10 billion in assets are exempt from this cap and still collect debit interchange revenues averaging around 44 cents per transaction, but larger banks have had to lower fees in observance of the price cap of about 24 cents per transaction. While the debit interchange regulations set a price ceiling, they did not stipulate this in relation to the total transaction amount, and as a result financial institutions that must abide by the Durbin Amendment have been collecting near the maximum debit interchange revenue for all transactions. While this still brings cost savings for fees on high dollar transactions it has increased the cost of processing debit cards for low dollar transactions, which has led to many merchants instituting a five dollar minimum to use a debit card. Setting the debit interchange amount near or equal to the cap for all debit card transactions, regardless of the transaction amount, may be what the DOJ is investigating with Visa’s “new debit strategies.”

While reporting their quarterly profits Visa also noted that the number of Visa card transactions and transaction volume increased 8 and 11 percent respectively from the previous year, but volume from debit card payments slowed down and continued to decline in the month following the fiscal quarter. As a result of the Durbin Amendment, part of the Dodd-Frank legislation, financial institutions cut debit reward programs and merchants have had to institute or raise their minimum transaction amount for accepting debit cards. Both of these results have very likely contributed to the decline in debit card use.

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