The Federal Reserve Board’s decision this week to take more time to analyze comments before finalizing its proposed debit-interchange rules could mean the final rules might not take as big a bite out of issuer revenue, some analysts believe.
In a March 29 letter, Fed Chairman Ben Bernanke notified Congress that the Fed will be unable to meet its April 21 deadline for issuing final debit-interchange rules because it needs more time to sift through more than 11,000 public comments submitted on the proposed rules (
Regardless of the delay, the Fed plans to implement the rules in July as required by the so-called Durbin amendment within the Dodd-Frank Act.
Brian Gardner, an analyst in the Washington, D.C. office of Keefe, Bruyette & Woods, said in a March 29 note to investors the firm believes the delay likely will result in a “moderating” of the rules the Fed proposed in December that would cap debit interchange at 12 cents per transaction.
“We think the market will interpret the letter as a sign that the Fed is changing its proposal in a way that is beneficial to the issuers and the networks,” Gardner wrote.
Bernanke’s decision to delay issuing final rules also may quell lawmakers’ efforts to pass legislation that would delay implementation of the Fed’s rules.
Sen. John Tester, D-Mont., on March 15 introduced a bill that would delay implementation for up to two years while regulators study the cost of the rule (
Tester on March 29 filed the bill as an amendment to the Small Business Investment and Research Act, according to a spokesperson in his office, who noted that it is unclear if or when the Senate might vote on the amendment.
Observers have noted that Tester’s bill faces an uphill battle to gain the 60 votes needed to pass.
Bernanke’s letter “will probably block the Tester bill in the short term,” Gardner wrote, adding that the Fed’s rule-making delay likely will diminish the urgency for lawmakers to push a bill through immediately. “We think Sen. Tester may still push for a vote this week, but if there is to be a vote we think it will occur in April or May,” Gardner wrote.
Another analyst characterized the Fed’s delay as a “doubled-edged sword” for the financial industry.
The delay is likely to “help get lawmakers comfortable that the Fed isn’t rushing into this and is instead taking a measured, balanced approach, which would reduce the likelihood of Congress taking the action the financial services industry really wants (which is to repeal the Durbin amendment),” Michael Brauneis, director of regulatory risk in the Chicago office of Menlo Park, Calif.-based consulting firm Protiviti Inc., tells PaymentsSource via e-mail.
The National Retail Federation, which represents most of the nation’s largest merchants, issued a statement March 29 supportive of the fact that Bernanke has vowed to stick with the original date of July for implementing new debit-interchange rules.
“The banking industry and some in Congress want to delay swipe-fee reform for as long as two years, but Chairman Bernanke has made it clear that the Fed doesn’t need a delay in implementation,” Mallory Duncan, the federation’s senior vice president and general counsel, said in a press release. “Congress held seven hearings and ordered two [General Accountability office] studies of swipe fees before enacting this law last year. Congress has made its decision and should allow the Fed to complete its work. Delay beyond this summer’s deadline would amount to a $1 billion-a-month bailout for big banks.”
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