WASHINGTON Sen. Richard Durbin, the architect of the Federal Reserve’s cap on debit fees, called on the Fed to enact new ceilings on swipe fees similar to a 2%-of-transaction maximum the European Commission has proposed.
“We recognize that the multi-trillion dollar financial industry is fiercely resistant to any interchange reform that might reduce their lucrative revenue stream,” the Illinois Democrat said in a July 26 letter to Fed Chairman Ben Bernanke. “But we are encouraged by the strength the European Commission has demonstrated in the face of this industry pressure.”
Durbin’s letter, which also was signed by Rep. Peter Welch, D-Vt., came a few days before yesterday’s court ruling striking down the Fed’s 2011 debit rule as flouting the intent of Congress, when lawmakers added it to the 2010 Dodd-Frank Act. By flouting the will of Congress the court meant Sen. Durbin, who sponsored the debit cap.
The court ruling means the Fed will have to rewrite the rule, probably with even lower debit caps.
Durbin said a straight 2% cap such as the one the EU has proposed would prevent Visa and MasterCard from increasing interchange rates on smaller transactions, as happened after the October 2011 enactment of the Durbin amendment’s 24-cent-per-transaction cap. Durbin noted that Visa and MasterCard have already adopted the cap voluntarily for many transactions within the EU.
“We believe regulators in our country must act affirmatively to rein in abusive fees and practices in the electronic payments system, and we hope that the European Commission’s announcement serves as a wake-up call to action,” wrote Durbin to the Fed Chairman.
“We urge the [Federal Reserve] Board to adjust its regulations to reflect the Commission’s proposal, particularly as applied to small dollar debit transactions,” wrote Durbin.
Debit fees are paid by the card networks, mostly Visa and MasterCard (but also American Express and Discover) to card issuing banks and credit unions. Fees on debit and credit card transactions have become a big profit center for banks and credit unions, with credit unions earning as much as $6 billion in card fees per year.
