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The industry's campaign to alter or repeal a Dodd-Frank provision limiting interchange fees on debit cards has gained unexpected momentum.
February 25 -
The ICBA's Camden Fine says because Dodd-Frank shifts control over routing debit card transactions from issuers to merchants, allowing them to bypass small financial institutions, it negates any benefit for exempt community banks.
February 18 -
Nearly seven months after passing a bill that included a measure to limit interchange fees on debit cards, lawmakers on Thursday were expressing buyer's remorse.
February 17 -
Sen. Richard Durbin on Monday sought to rebut claims by banking groups that a provision in the Dodd-Frank Act that limits interchange fees on debit cards will prove harmful to consumers.
February 14 -
The number of community banks has already been cut in half and it's no stretch to imagine that total being halved again in coming years. The question for policymakers is does this matter?
January 25 -
The banking industry is mounting an assault on multiple fronts to weaken, stall or repeal the restrictions on debit interchange fees championed by Sen. Dick Durbin in Dodd-Frank.
January 20
WASHINGTON — An effort to delay debit interchange rules continued to build momentum Wednesday as bankers and lawmakers called for a more effective exemption for small financial institutions.
On Capitol Hill, community banks and credit unions pressed Congress to slow down and reconsider the rule, which they said would cripple fee income and hurt small-bank customers. Across town at the Credit Union National Association's governmental affairs conference, lawmakers from both sides of the aisle said they would support a bill to delay the provision.
"I think that you folks had it right when you suggest that on this issue Congress needs to stop, study and start over," said Sen. Jon Tester, D-Mont., who is expected to introduce legislation soon to delay the rule's effective date. "The stakes are simply too high to move forward with this rule without a closer look at the impact on credit unions and community banks...That is why I'm committed to making sure we stop these proposed rules before implementing anything."
Although the interchange measure, authored by Sen. Dick Durbin, D-Ill., received bipartisan support when it was enacted last year, opposition from members of Congress has grown louder over the past few weeks after two top regulators testified that it could hurt small banks.
Under the Dodd-Frank Act, the Federal Reserve Board is required by April to finalize a rule implementing the interchange cap for debit cards. It issued a proposal in December that would set the cap at 12 cents. Although it ostensibly exempts institutions with less than $10 billion of assets from the plan, regulators and industry representatives said small banks will still be put at a competitive disadvantage.
Speaking at the CUNA conference, Rep. Debbie Wasserman Schultz, D-Fla., called the measure deeply misguided, and said Congress needs to study the provision and fix it to ensure that small financial institutions are truly exempt.
"Sheila Bair and Ben Bernanke have both said they would delay the interchange rule if they were so directed by Congress," she said. "What do you say? Are you ready? I'm ready."
Several lawmakers referenced comments made by Federal Deposit Insurance Corp. Chairman Sheila Bair and Federal Reserve Board Chairman Ben Bernanke two weeks ago, when they told a Senate hearing that the provision could force small banks to lower their interchange fees or face potential rejection of their cards by retailers.
"I think it's notable . . . the chairman of the Federal Reserve was acknowledging the exemption was not effective and we need to do more to make it effective," said Sen. Mike Crapo, R-Idaho, who has also requested that Congress delay the implementation and take a closer look at the proposal. Crapo said the Senate Banking Committee plans to hold hearings on the issue.
Sen. Roy Blunt, R-Mo., also pointed to Bernanke's testimony as reason to look at the new rules more carefully.
"You just can't rush to regulate," he told the CUNA conference. "It shouldn't be the job of Washington to decide what you make a little profit on and what you are going to give a little on. How that balances out is better decided by you than by us."
House Financial Services Chairman Spencer Bachus said senators who voted for the Durbin amendment are reportedly going back to the Illinois Democrat to lobby for changes or a delay to the provision.
"I don't know where that gets you," Bachus said. "You ought to ask the senators, 'You said it wouldn't apply to me, and we know it does. What are you going to do about it?'"
Both Bair and Bernanke have raised the possibility of requiring a two-tiered rate system that would prevent merchants from rejecting debit cards from smaller institutions with higher fees.
But lawmakers, including Tester, have raised doubts about whether it would work.
"I voted against this amendment because I do not believe that a two-tiered system of interchange can or will work," he told the CUNA conference. "While the amendment included a small issuer exemption from rate setting in the Federal Reserve's proposed rule, we've seen that this exemption has been rendered meaningless because it cannot be enforced."
Bankers testifying before the House Financial Services Committee on Wednesday said the rule is one of the most chilling provisions in the Dodd-Frank law.
Albert C. Kelly Jr., the president and chief executive of Spirit Bank in Tulsa, Okla., and chairman-elect of the American Bankers Association, said the rule will devastate retail bank profitability.
He estimated that the rule could reduce interchange income by as much as 85%. While he noted the technical exemption from the interchange cap, Kelly said having two different prices for the exact same product is unsustainable.
"Market share will always flow to the lowest priced product, even if those lower prices are mandated only for some," he said. "The result for small banks is either a loss of market share, loss of revenue that supports free checking and other valuable services, or both."
John P. Buckley Jr., the president and chief executive of Gerber Federal Credit Union, called the exemption "toothless," and said the rule doesn't fairly compensate issuers for the cost involved in processing debit card transactions, including efforts to combat fraud.
"Credit unions are forced to charge-off fraud losses and incur additional expenses in making their members whole again, much of which stem from the failure of merchants to protect sensitive financial information about their customers," Buckley said. "These were not factored into the Federal Reserve's proposal."
