Delaying the start of proposed debit-interchange rules would represent a “huge handout” to large banks that do not deserve another bailout by consumers and businesses, Sen. Dick Durbin, D-Ill., told reporters during a teleconference.
The Federal Reserve Bank is on track to issue final rules April 21, Durbin says, calling proposed legislation that aims to delay implementation “a smokescreen, as far as we’re concerned.”
(Fed Chairman Ben Bernanke this week said the Fed would need more time to review comments.)
Debit interchange amounts to some $1.3 billion per month that merchants pay as part of the discount rate for accepting debit card transactions, Durbin notes. The senior senator from Illinois championed a cap on debit card interchange fees and provisions that he says will increase competition among processors in an amendment he advocated to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which became law last summer.
“The biggest banks, who have the lion’s share of transactions on these debit cards, and the credit card companies are really not the most popular political figures in Washington,” Durban says. “They’re letting the credit unions and the community banks do the work” of lobbying against the proposed rules.
Though financial institutions with less than $10 billion in assets are “largely and overwhelmingly excluded” from the proposed rules, which would cap debit interchange at 12 cents per transaction,” smaller institutions “are arguing just the opposite” in what has become “very interesting lobbying” by debit-issuing banks, Durbin says.
In recent years payment card interchange has been the subject of nine congressional hearings and three separate studies by the General Accountability Office, Durbin says, adding that “we don’t need a study; we need action.”
Durbin says he knows from “early reports” that the Fed has determined the current charge for a debit transaction averages 40 cents, and the “actual cost is 10 cents.”
Ed Mierzwinski, program director at U.S. Public Interest Research Group, who joined Durbin on the call, said the proposed new debit rules will bring “new efficiency” to the debit market, sparking a movement toward PIN debit versus more-costly signature debit that comprises a larger share of all debit transactions.
PIN-debit transactions result in “seven times less fraud” than signature-debit transactions, Mierzwinski contends, noting that signature debit is “an inherently more dangerous, more reckless, more fraud-prone product.”
If the proposed rules cause banks to eliminate some loyalty schemes, as large banks have indicated, that would benefit consumers because “rewards in the debit market are only there to get consumers to switch from PIN to signature, Mierzwinski says. “Getting rid of rewards, I think, is good for consumers.”
Art Potash, CEO of Chicago-based Potash Bros. Market, who was also on the call, describes the proposed debit-interchange rules as long overdue because debit and credit cards account for some 70% of all transactions at his chain of three supermarkets and are the only operations cost he cannot negotiate or reduce. Potash says that with lower operating costs for reduced debit interchange, merchants would lower their prices to remain competitive.
“In tough economic times, the customer could use a break,” Potash says.
Asked how he plans to block lawmakers’ efforts to delay the rules, Durbin says that because his amendment originally required 60 votes, it is only fair that it will require 60 votes to reverse it. He was referring to the 60-vote supermajority required to block a Senate filibuster.
Observers predict an uphill fight for Senators pushing for the delay.
