Debit Interchange Showdown On Capitol Hill

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WASHINGTON – Lawmakers are expected to press the case of credit unions and community banks asking for the Federal Reserve to ease off proposed price restrictions on debit interchange during a hearing before the House Financial Services Committee next week.

The driving force behind the hearing, ironically, are the very entities that would be exempted by the interchange provisions of the Dodd-Frank Financial Reform Act – credit unions and banks with less than $10 billion in assets. Those entities have deluged the Fed with comment letters insisting that proposed cuts in debit fees of as much as 70% would harm them more than the big banks because the lower pricing would be extended to them as well.

Scheduled to testify at next Thursday’s hearing are Federal Reserve Gov. Sarah Raskin, as well as representatives from Visa, the merchants groups, which lobbied for the interchange restrictions, and the banks.

The American Bankers Association sent a letter to all members of Congress on Tuesday asking lawmakers to intervene immediately to stop the proposed cap on interchange fees.  The ABA said market competition would force smaller banks to adopt the same debit fee level, even though they are technically exempt from the Fed’s proposal. “These institutions are key to growing the economy and helping small businesses create more jobs. Proposals like the debit interchange rule would only further harm these banks by dramatically reducing revenues with no real benefit to the consumer,” the letter said.

The smaller entities hope at least to convince Congress to extend a deadline on the proposal from the current enactment date of July 21.

The fight over debit interchange has emerged as a major battle on Capitol Hill, with fees charged on debit transactions projected to amount this year to some $20 billion. About a tenth of it, or $2 billion, going to credit unions, the rest to banks.

 

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