WASHINGTON – A governor for the Federal Reserve told lawmakers yesterday that any attempt to amend or delay the controversial rule on debit interchange is out of the Fed’s hands and must start with Congress.
“The Fed doesn't have the power to delay the proposal itself,” Sarah Raskin, one of the seven governors, told members of the House Financial Services Committee yesterday after several members urged the Fed to delay enactment of a final rule. The Fed would “definitively defer to Congress” if a law were passed requiring it to delay or take another route on the rulemaking, she added.
The stakes are huge for credit unions, which earned an estimated $2.6 billion last year – well more than half of all their net income – from debit card interchange. Interchange for credit unions from debit transactions now exceeds by far all revenues earned on credit card transactions.
The Fed governor’s remarks comes as a growing number of House members being lobbied by banks and credit unions urged the Fed to rethink proposed price controls that would slash interchange on debit transactions and throw the $60-billion-a-year market into turmoil.
“We need to delay this for the purpose of getting it right,” said Rep. Jim Renacci, D-Ohio.
“I think it is highly necessary [to delay final enactment],” added Quico Canseco, R-Texas.
But the Fed’s Raskin pointed out that any effort to change the parameters of the interchange provisions, included in last year’s Dodd-Frank Financial Reform Act, will require new legislation.
Credit union sources said yesterday they are working with several congressional allies to draft legislation that would make certain changes, among them a delay in final enactment, in order to give all interested parties more time to hash out the details.
However, the prospects for such legislation are dubious because there is little enthusiasm for it in the Senate, where the interchange amendment originated. Senator Richard Durbin, the Illinois Democrat who crafted the Dodd-Frank provision and an exemption for smaller lenders, has vowed to push back against any changes in the law or the Fed’s proposal. He has criticized Washington trade groups such as the Independent Community Bankers of America and CUNA for claims that the exemption for all institutions under $10 billion are unworkable, saying those groups are trying to scare their members.
The comment period for the Fed proposal ends next week, on Feb. 22. Under Dodd-Frank, the central bank is required to complete work by April 21 on the cap provision, which would go into effect by July 21.
