The Federal Reserve Board’s proposed new debit-interchange rates are unlikely to go into effect this summer without some significant changes, the co-chief of a large ISO speculates.
As talk swirls about a possible implementation delay or the introduction of legislation that would alter the so-called Durbin amendment within the Dodd-Frank Act, Henry Helgeson, co-CEO of Boston-based Merchant Warehouse Inc., says he expects the final rules to look much different from those the Fed proposed in December (
“There is no evidence that merchants will pass savings from lower debit interchange on to consumers, and at the same time we know that banks are going to have to recoup their debit-interchange losses at the expense of consumers,” Helgeson tells ISO&Agent Weekly. “That adds up to a bad bill at a bad time for consumers and for the payments industry. As more lawmakers backpedal on this, I think it’s almost certain something will happen to stop it.”
The Fed has proposed limiting debit card interchange at 12 cents per transaction for all institutions but those with $10 billion or less in assets. The comment period ends Feb. 22, and the legislation requires the Fed to issue final rules by April 22 that would go into effect in July.
At a Feb. 17 House Financial Services Committee hearing about the amendment, lawmakers from both parties urged a delay, while Fed Chairman Ben Bernanke told members of the Senate in a separate hearing that the proposed rules possibly could harm smaller institutions.
Full Effects Unknown
ISOs possibly may realize financial gains–at least in the short term–from lower debit-interchange rates by not passing their savings on to merchants, but overall the Durbin amendment threatens to cause ISOs pain, some observers believe.
Merchant Warehouse is under no obligation to do so, but it will pass on cost savings to merchants if the rules go into effect as proposed, and Helgeson says he is focusing on the long-term potential negative consequences of the proposed new rules.
“We don’t know the full effect on all parties of the Durbin bill, but at the very least it threatens the stability of the payments industry,” he says. “And it appears more people will lose than will win the way it’s written now.”
Implementation of the Durbin amendment requirements likely will be delayed “through some political process,” Helgeson says, predicting changes to the proposed debit-rate caps. “I don’t see the 12-cent cap standing,” he says. “It doesn’t allow for any profit to banks and could force banks to take actions that would be quite harmful to consumers and to the payment system itself.”
Sen. Richard Durbin, D-Ill., on Feb. 17 released a letter to Bernanke and a lengthy statement explaining why Bernanke’s concerns about the proposed rules are unjustified.
Mallory Duncan, general counsel for the Merchants Payments Association, an organization representing most of the nation’s largest merchants, said he doubts the proposed rules will be derailed.
