The Federal Reserve on Thursday proposed rules that could sharply limit the fees that banks charge retailers for debit card transactions.

The rules would carry out the orders Congress issued to the Fed in the landmark financial-reform law passed this year. The legislation requires that the central bank come up with a plan to assure that so-called swipe fees for debit cards are "reasonable," addressing an issue that has long been a sore point with retailers.

Either of two Fed proposals would cap the swipe fee at 12 cents per transaction -- far below what banks now charge retailers.

“If the [Federal Reserve] Board adopts either of these proposed standards in the final rule, the maximum allowable interchange fee received by covered issuers for debit card transactions would be more than 70% lower than the 2009 average, once the new rule takes effect on July 21, 2011,” the Fed said in a statement on its website.

Retail groups cheered the Fed’s move, and suggested that their savings would be passed on to shoppers.

“Any reduction in swipe fees at all, large or small, is a benefit for consumers because retailers are highly competitive and will share that savings with their customers,” Mallory Duncan, senior vice president at the National Retail Federation in Washington, said in a statement. He noted that “the law requires a major reduction” in the fees.

But the American Bankers Assn. attacked the Fed's proposed changes, saying they would have "a dramatic impact on the cost of banking services for consumers nationwide." The proposals "essentially relieve retailers of paying their fair share for a card payments system that offers them tremendous benefits," said ABA President Edward Yingling.

Fed Vice Chairwoman Janet Yellen said in a statement that the surge in debit card transactions in recent years “has precipitated a national and international debate over the appropriate level of the fees. In 2009, debit card interchange fees totaled over $16 billion in the United States.”

The Fed’s proposals drove shares of card payment networks Visa Inc. and MasterCard Inc. sharply lower. Besides hacking swipe fees, the proposals “would let merchants choose from at least two independent debit networks for routing transactions, potentially creating more competition for Visa and MasterCard,” Bloomberg News noted.

Visa plunged $9.75, or 12.7%, to $67.19; MasterCard sank $25.73, or 10.3%, to $223.49.

Bank stocks also turned lower after the Fed posted its proposals on its website, but most bank issues closed little changed.

The Fed is asking for public comment on its proposals by Feb. 22.

-- Tom Petruno

Image: Karen Bleier / AFP Getty Images