Congress Rethinks Debit Interchange Controls

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WASHINGTON – Lawmakers are having second thoughts on a provision creating price controls on debit card interchange they easily approved during last year’s debate on the Dodd-Frank Financial Reform Act.

A bipartisan group of members of the Senate, which approved the provision without any debate, told the Federal Reserve it is concerned with provision that will replace a market-based system with government controls that could slash fees as much as 70%. “We should all agree that having the government fix prices in almost any venue is a bad idea,” said the senators in a joint letter to the Fed.

The group of eight Republican and five Democratic senators, none of whom raised a concern regarding the provision during Senate debate, said they now are concerned that proposed cuts in fees will not find their way back to consumers, as proponents of the provision insisted. “During the very limited debate on the Senate floor on this provision, the Debit Interchange Fee Amendment was presented as a pro-consumer provision that would lower costs for customers who use debit cards,” said the senators. “However, since passage of the amendment, analysts’ reports for retailers likely to be affected by the provision make no mention of any benefits to consumers. Related to this, many predict that consumers will be faced with additional bank fees as the rule is implemented.”

The Senate added the controversial interchange amendment to the landmark financial reform bill at the behest of Illinois Democrat Dick Durbin on the night before a final vote on the bill, with no senator from either party expressing any concerns in public.

The senators were: Republicans Richard Shelby of Alabama, the ranking member of the Senate Banking Committee, Mike Crapo of Idaho, David Vitter of Louisiana, Pat Roberts of Kansas, Bob Corker of Tennessee and outgoing Judd Gregg of New Hampshire, Robert Bennett of Utah and Sam Brownback of Kansas, as well as Democrats Jon Tester of Montana, Mark Warner of Virginia, Christopher Coons of Delaware, Tom Carper of Delaware, and outgoing Evan Bayh of Indiana.

The letter was submitted to the Fed last month as it began considering a final rule implementing the interchange provision. The major feature of the proposal would be to cut fees in all debit transactions to an average of 12 cents per transactions, which would amount to as much as 70% off the current structure. While the Fed’s proposal applies only to credit unions and banks with more than $10 billion in assets, most observers expect it to have a profound on fees accruing to the thousands of credit unions and banks with less than $10 billion in assets.

The Fed’s actions will have a major impact on credit unions, who earned as much as $2 billion from debit interchange last year.


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