WASHINGTON — Congress and the Federal Reserve were subjected last week to a full-court press of support and opposition from all sides related to the Durbin Amendment's potential impact on interchange.
Public interest groups, big box retailers, small mom and pop merchants, credit unions and banks all offered differing views on what a cap on fees will mean to them and consumers.
Late last week, U.S. Public Interest Group, the leading consumer lobby in Congress, called on the Fed to maintain course and reduce fees on debit transactions while opening the cards market to greater competition.
"We believe the Durbin Amendment, along with the implementation of the proposed rule, will have a beneficial impact on consumers and merchants by reining in excessive debit fees and eliminating or preventing anti-competitive practices of some payment card networks," Edwin Mierzwinski, consumer program director for U.S. PIRG, told the Fed in a comment letter on the debit proposal.
Saying "the swipe fee market is broken and all consumers pay more for less because of escalating swipe fees," the consumer lobbyist took issue with arguments by credit unions and banks who say they cannot make a fair profit by the Fed's proposed cuts to 12 cents per transaction.
Mierzwinski questioned threats by banks and credit unions that lower debit fees will force them to charge higher fees for other services. "There is simply no demonstrated relationship between debit card swipe fees and other consumer charges," he told the Fed. "Although debit card swipe fees increased almost four-fold over the past decade, there was no related decrease in other charges to consumers-in fact, consumer costs have been going up consistently for 10 years, 20. For example, overdraft fees hit a record $38 billion in 2009, which was double what they were in 2000."
He urged the Fed to limit allowable costs in calculating a fee cap to no more than authorization, clearance and settlement for a debit card transaction. Mierzwinski further called on the Fed to implement its proposed rules to allow merchants to shop for the cheapest debit card alternatives.
Meanwhile, in other news related to the debit interchange fee provisions of Dodd-Frank:
Credit Unions, Banks File Brief
• Credit union and bank groups filed a brief last week asking a federal court to block implementation of the provisions. The so-called friend of the court brief by CUNA, NAFCU, the American Bankers Association, and the Independent Community Bankers of America, was filed as part of a suit by TCF Bank challenging provisions of the Durbin amendment that will set caps on interchange fees collected by financial institutions.
The amicus brief cites problems with the Durbin amendment, including the directive that the Federal Reserve set "reasonable and proportional rates" on interchange, that the language does not allow for all reasonable costs incurred in setting the allowable fees and that the requirements on routing and exclusivity are problematic, according to Mary Dunn, senior regulatory lobbyist for CUNA.
Big Box Retailers Urge Proceeding
• Big Box retailers Target, Walmart, SuperValu and Costco are urging the Federal Reserve to proceed with its bid to curb debit fees, insisting they will pass on billions of dollars in reduced charges to consumers.
"Given the competitive nature of retail, whatever the benefits might turn out to be to us and to our principal competitors, those benefits are highly likely to accrue directly to the consumer," Terry Scully, president of Target Financial Services, one of the few big box retailers to compete directly with credit unions and banks with its own bank, told the Fed in a recent comment letter on the proposal.
The big box retailers are the lead drivers in the Merchants Payments Coalition, which has been lobbying Congress for several years to roll back some of the estimated $65 billion in interchange fees on both credit cards and debit, finally breaking through with last year's Durbin amendment limiting debit fees.
Bill Would Delay Provisions
• Several U.S. Senators are preparing to introduce legislation that would at least delay the impending implementation of the interchange provisions for as long as two years while the Fed and interested parties study and discuss the complication issue. The stakes in the fight are huge, as an estimated $20 billion a year in debit fees are being paid by merchants to banks and credit unions, with credit unions earning about $2.5 billion of that.
Mom & Pop Stores Make Plea
• Hundreds of neighborhood business are calling on the Federal Reserve to proceed with the debit interchange provisions of the Dodd-Frank Act in hopes of passing on the savings back to their communities.
The fight, while ostensibly between the huge banks and the big box retailing giants, is being played out between the thousands of small businesses and local financial institutions who have much smaller stakes.
"Hard work does not ensure success when you sell a package of cigarettes for $4, make 15 to 20 cents, and then have debit card fees that eat most of that small profit," Howard Davis, owner of Nampa, Idaho's Howard's Tackle Shoppe, told the Fed in a recent comment letter on the proposal. Davis, whose shop sells fishing tackle and convenience store items, said he pays as much as $600 a month on interchange fees in the winter and a much as $1,500 a month in the summer.
ATM Fee Exclusion Is Urged
• 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.
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."
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."
