Fed Chairman Doubts Debit Rule Exemption's Efficacy

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WASHINGTON-Federal Reserve Chairman Ben Bernanke told Senators he is doubtful the Fed can develop a rule adequately protecting CUs and small banks from the cuts in debit fees mandated for the biggest banks.

"There are good reasons to be concerned about" the exemption for credit unions and banks under $10 billion shielding the smaller institutions from the impact of the Durbin amendment, the Fed Chairman told the Senate Banking Committee. "It's going to affect revenue of small issuers. And it could result in some smaller banks being less profitable or even failing."

The Fed Chairman was responding to question by Montana Sen. Jon Tester, who has proposed a bill that would delay implementation of the debit rule for two years. Tester said despite the exemption, smaller FIs will be affected by the market impact of the rule as more merchants gravitate to the lower debit fees mandated for big institutions.

The Fed proposed a rule in December that would cut debit fees to as little as seven cents per transaction, but the Fed is expected to raise the cap to a higher figure that could dampen enthusiasm in Congress for a delay.

The stakes in the fight are enormous, with merchants paying credit unions and banks some $20.5 billion in debit fees last year.

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