Despite a 4 to 1 vote by the Federal Reserve Board on its final interchange rule, one thing all the governors could agree on was this: Don't blame us, Congress made us to do it.
"We are not at liberty to say, 'No' to what Congress has statutorily required us to do," Fed Gov. Sarah Bloom Raskin said at the central bank's public meeting on Wednesday afternoon.
The Fed met to vote on a final rule that ultimately boosted the fee merchants will have to pay banks every time a debit card is used to 21 cents plus extra for fraud charges, up from its original cap of 12 cents.
But what was most striking about the meeting was the way Fed officials sought to distance themselves from the rule. Repeatedly, and sometimes even forcefully, all five members of the Board, including Chairman Ben Bernanke, argued they had no choice in the matter. Given the requirements assessed by Congress, this was their best effort, they said.
"This is the best available solution to implement the will of Congress," said Bernanke.
Speaking candidly, the chairman said the provision, authored by Sen. Richard Durbin, D-Ill., was the most difficult rule the Fed has had to undertake under Dodd-Frank to date, requiring more person hours than any other rule and calling for "many, many, many difficult decisions."
But with no other possible alternative at hand, Fed governors seemed outright reluctant to vote in favor of the rule and adamant in making that point publicly.
"We have to focus on the fact that we are required to act here," said Fed Gov. Daniel Tarullo. "This is not a question of discretion on our part whether to act, only how to act."
Tarullo even went so far to note that like those who would be affected by the new rule, some at the Fed were not happy with the final outcome, as well.
"I'm sure, I'm positive, there are many merchants, issuers, consumers, and networks, which would want to change much of what has been proposed, just as some of us at the Board may want to do for it's a matter of our own preferences. But it's not. We have to act in accordance with the language of the statute," said Tarullo.
Fed governors aired a number of shared concerns including the fact that the law, as written, would preclude it from enforcing a two-tiered pricing system, as well as whether small institutions with $10 billion in assets would be exempted effectively.
For now, regulators will reluctantly have to take a wait-and-see approach for the most part, even with a proposal by Tarullo to study the issue within six months.
Bernanke said that current efforts under the Fed's rule will give regulators "the best shot" in making the exemption effective. The Board said it will keep a list of institutions that fall above and below $10 billion each year and list the average interchange fee by network for exempt banks.
But that was not enough to persuade Fed Gov. Elizabeth Duke, who was the lone dissenter on the rule.
She said could not support the rule because she was not convinced of the effectiveness of the small issuer exemption in practice, as well as consumer protections on pre-paid cards. The Fed, she noted, didn't have a chance to complete those protections before having to transfer responsibility to the Consumer Financial Protection Bureau.
"I am proud of all the rules we did propose and implement over the last three years, but I wish we could have done more on this front," said Duke.
Perhaps given the choice, some regulators would have opted not to act, Bloom Raskin said.
"I want to underscore my colleagues' unease with this kind of regulatory intervention," said Bloom Raskin. "Indeed, when a regulator has to intervene in a market to better align pricing with costs that market must be working somehow less than competitively. We didn't create this market. We didn't craft the Durbin amendment. We're only doing what Congress has directed."
So what do you think? Did the Fed have no choice? Is its rule a faithful reading of Dodd-Frank?