Warning lawmakers that the Federal Reserve Board’s proposed new debit-interchange rules likely would thwart national job growth, the American Bankers Association and 55 other state and community banking associations urged members of Congress in a Feb. 8 letter to “intervene immediately” to block the rule’s implementation.
The Fed’s proposed rules, mandated by Congress as part of the Durbin amendment within the Dodd-Frank Act, amount to “price controls” on debit interchange and would result in “severe harm to the entire banking industry,” the associations wrote.
Merchant acquirers would pay most debit card issuers no more than 12 cents per transaction under the proposed rules, which would go into effect in July (
The Fed’s proposal “gives no consideration to the overall costs to maintain or improve the U.S. payment system, the full costs that banks bear to provide the service, the costs of fraud and fraud prevention (the vast amount of which is borne by the banking system), and the need for a return on capital,” the associations wrote.
Smaller banks, especially community-based ones, would be particularly harmed, the letter states, despite the law’s exemption for issuers with less than $10 billion in assets. The exemption would not work because “marketplace pressures will force all banks to conform to the artificially lower government-mandated interchange-rate restrictions to which larger banks will be subject,” forcing all banks to “suffer” from the proposed rule, the letter says.
Moreover, implementing the Fed’s rule would deprive banks of resources needed to make loans to consumers and businesses, the associations said. Banks may be forced to stop issuing debit cards, raise banking fees, cut personnel and restrict other routine services, the wrote.
“This lost revenue would impair capital growth and reduce the ability of banks to make job-producing loans that support a growing economy,” the associations said.
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