OLR Report 2013-R-0015 summarizes what fees a Connecticut merchant is charged when a customer pays for a purchase with a debit card or credit card.
In order to process credit cards and debit cards, a merchant must negotiate a “merchant discount fee” either with his or her financial institution or, for Discover and American Express, with the credit card company directly. The negotiated fee is then subtracted from each customer transaction with a credit or debit card. The “interchange transaction fee,” which is paid to the credit or debit card issuer, makes up the largest percentage of the merchant discount fee and is the focus of this report.
In 2011, the Federal Reserve adopted Regulation II, which limits the amount of interchange fees that debit card issuers can charge for transactions. The rule limits the interchange fee to a maximum of 21 cents plus .05% of the transaction value. The rule exempts financial institutions with less than $10 billion in assets. To date, there are no such laws or regulations limiting the interchange transaction fees an issuer may charge for credit card purchases. Since credit card interchange fees vary significantly from one card to another and from one merchant to another, some merchants may pay higher fees for credit card transactions while others pay higher fees for debit card transactions.
For more information, read the full report.
