$25 Question: Will Durbin Amendment Include ATM Transactions?

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WASHINGTON – Credit unions and banks are urging the Federal Reserve to exclude ATMs transactions from the new rules setting price caps on debit fees.

Even though the commentary on the Durbin amendment to the Dodd-Frank Financial Reform Act does not expressly refer to ATM transactions, the Fed has asked interested parties to comment on the inclusion of ATM fees. The rule will set certain limits on the fees banks and credit unions with more than $10 billion in assets may charge on debit transactions and set standards for network exclusivity.

There is growing pressure to extend the debit proposal to ATMs. Merchants groups asserted that the Durbin amendment was meant to include ATM transactions. “We respectfully request that you ensure that the regulations...apply to ATM transactions. We believe that such a result is consistent with the express provisions and the legislative intent of the Act,” wrote John Leehy, president of Payment Alliance International, an ATM service provider that processes transactions for 50,000 ATMs owned by small businesses.

“The reality of the debit transaction market is that market forces do not efficiently protect the non-bank retail ATM owners and operators,” wrote Leehy. “In effect, the non-bank retail ATM owners and operators have no seat at the table and no market power to affect ATM transaction interchange rates. Thus, the same anti-competitive market forces that have caused inefficiencies in the debit transaction market for point of sale merchants have affected in a similar manner the business of non-bank retail ATM owners and operators.”

Sen. Richard Durbin himself, the author of the interchange provision, told the Fed the exclusivity and routing provisions of the amendment should be extended to ATM transactions. “In my view,” Durbin told the Fed, “the Board could reasonably construe an ATM withdrawal as an electronic debit transaction under the amendment and apply the non-exclusivity and routing provisions to situations where a network or issuer attempts to restrict the number of networks on which an ATM transaction may be conducted to one network or to two affiliated networks.”

“Such a step would have the benefit of ensuring that competition and choice exist in the market for ATM network transactions so that consumers are not forced to pay higher ATM fees as a result of a lack of competition and choice,” wrote the Senator.

But credit unions and banks, already fighting price caps on debit transactions, are insisting the Durbin amendment should not include ATM transactions.

“We feel that inclusion of these [ATM] transactions would be completely overstepping as they are not mentioned at all in the legislation and are completely different,” wrote Beverly Rutherford, VP-compliance at Virginia CU, in a comment letter to the Fed. “There is no product being purchased by the consumer, and it is more of a privilege of being able to use another institution’s machine.”

“While not always, many ATM transactions are between financial institutions and this system has been in place and working for many years,” wrote Rutherford. “There is no need to fix it.”

As far as allowing the acquiring institution to route the transaction as it desires, “there is not a need for this,” she added. “The acquirer already has the ability to charge a surcharge to the consumer on top of the fee it is receiving from the network (issuer). The acquirer is the one receiving all the income; they should not be in the driver’s seat to determine which network the issuer must pay.”

“Treating ATM transactions as electronic debits and applying the proposed network exclusivity and routing provisions to these transactions will not provide any benefit to the consumer,” said Todd Haller, vice president, electronic funds transfer, for Peoria, Ill.’s CEFCU.

Representatives from banking giant Citigroup agree. “Given the magnitude and disruptive nature of the changes to be implemented by the Interchange Amendment, we believe that its scope should not be expanded beyond its plain language,” wrote Carl Howard, deputy general counsel for the bank. “In addition, the Interchange Amendment is focused on regulating debit card fees paid to an issuer. Although fees may be charged when debit cards are used at ATMs, the fees collected from those transactions are generally paid by, as opposed to being paid to, an issuer.”


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