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By Dave Clarke and Maria Aspan
December 17, 2010 4:35 AM EST
U.S. banks face deep cuts in the debit card fees they charge retailers under a Federal Reserve proposal that also exposes card networks Visa and MasterCard to more competition.
Shares of Visa closed down 12.7 percent and MasterCard fell 10.3 percent on Thursday as investors feared the industry could lose billions of dollars in revenue.
The proposal would generally limit so-called debit "interchange" fees at 12 cents per transaction. The average interchange fee for all debit transactions was 44 cents per transaction in 2009, the Fed said.
The banking regulator also sought comment on requiring debit cards to offer multiple networks -- allowing the same debit card to be processed over either Visa, MasterCard, or rival payment networks like NYCE, a unit of Fidelity National Information Services Inc.
The proposal is a win for retailers who have long lobbied for fee cuts but it also puts heavy pressure on Visa and MasterCard, the largest card networks.
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One payments industry source had a succinct email response to an inquiry about the Fed proposal: "Ouch."
Shares in major card-issuing banks, such as Bank of America, were up or flat in line with the broader market.
Visa had no immediate comment. MasterCard General Counsel Noah Hanft called the proposal "misguided and anti-competitive" and "harmful to consumers."
The sweeping Dodd-Frank financial industry reforms signed into law in July called for new curbs on debit card fees.
The Fed is required by the law to put out a final rule on the fees by April 21 and it would become effective in July.
The Fed called for public comment by February 22.
DEEPER CUT THAN EXPECTED
"If you look at the 12-cent cap, that's certainly much more of a cut than people were anticipating," said Michael Nix, a portfolio manager at Greenwood Capital Associates.
Nix's firm owns Bank of America and Visa shares. He said he had thought about selling his Visa stake -- "and now I wish I had."
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