Bankers Balk At Bifurcated System On Debit Interchange

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WASHINGTON – The banking lobby is rejecting Visa’s proposal for a dual system on debit card interchange, saying such a system will only force merchants to migrate to the lower-cost cards as mandated for the biggest issuers.

“Despite the statutory attempt to separate out smaller banks from the price controls embodied in the Durbin amendment, the marketplace will do what it always does – drive business to the lowest cost option,” said  Kenneth Clayton, senior lobbyist for the American Bankers Association. “Community banks will ultimately be harmed as a result, making it harder for them to meet the needs of their customers and local communities. A very real conclusion that can be drawn is that this type of government interference in marketplace pricing is inappropriate, counterproductive and extremely harmful to consumers.”

The Independent Community Bankers Association agreed. “ICBA does not believe Visa’s intent to establish a dual interchange system for large and small financial institutions will shield community banks and their customers from the negative impact of government price-fixing of debit card interchange over the long term,” said Karen Thomas, senior lobbyist for the banking group. “A two-tier system will continue to benefit big-box retailers while leading to more consumer fees, fewer product choices and greater consumer confusion regarding card acceptance as these merchants find ways of routing transactions to maximize their cost savings and profits and shift costs to consumers.

The bankers’ reticence comes as Visa announced it will create a two-tiered system for debit interchange – one tier applying to the biggest issuers, those with more than $10 billion in assets, which come under the Dodd-Frank Act’s price control provisions, and the other for the thousands of credit unions and banks under the threshold.

MasterCard has yet to commit to such a system.

“Despite Visa’s actions, the Durbin Amendment requirements will not prevent large retailers from steering customers to cheaper rate-controlled cards issued by large banks,” ICBA’s Thomas. “Further, Visa’s intention leaves unanswered questions about how interchange price-fixing will affect community bank customers, how other networks will respond to the Federal Reserve’s proposed rule to implement the Durbin Amendment and what effect industry pressure will have on network pricing going forward.


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