Merchants And Banks Cite Job Losses As They Brace For An Interchange Showdown

In a warm-up for tomorrow’s Capitol Hill hearing on the Federal Reserve Board’s proposed debit-interchange rules, merchants’ representatives during a press conference today said that unless the rules are left unchanged, merchants might be forced to lay off employees.

“As the sizes of these (debit-interchange) fees increase year over year, it means (merchants) can’t hire more employees, or they have to let employees go; they have to choose between cutting health care for their employees or letting people go because of these fees,” said Douglas Kantor, counsel to the Merchants Payments Coalition.

Small merchants in particular struggle to turn a profit as debit interchange has grown faster in recent years than any other operating expense, U.S. Rep. Peter Welch, D-Vt., said during the conference.

The proposed rules will enable smaller banks to “get a fair price” on debit services, Welch said, countering the banking industry’s argument that the Fed’s exemption from the interchange-rate cap for issuers with less than $10 billion in assets will not protect them. Large banks “make a significant amount of money” from debit interchange for “very little service,” he added.

Businesses rarely welcome government regulations, but in the case of debit interchange it is “one of the rare situations where we think some level of government intervention is warranted and necessary,” Todd McCracken, president and CEO of the National Small Business Association, said during the conference.

Interestingly, the American Bankers Association also harped on job losses last week in a letter to lawmakers. The association contends the Fed’s proposed rules would cause “extreme harm” to banks and likely would thwart job growth by forcing financial institutions to cut personnel and restrict loans to businesses (see story).

The bankers association also responded to the support for the Fed’s proposal from U.S. Sen. Richard Durbin, D-Ill.

Noting that the Fed “ha-s not even addressed the actual cost of fraud losses, which are indeed borne mostly by banks,” the bankers association said there is no “guarantee” that a two-tier debit-interchange system protecting smaller banks would be supportable over the long run and that Durbin ignores the negative effects of debit-interchange cuts on banks’ operating costs.

The Fed’s proposed rules, mandated by Congress as part of the so-called Durbin amendment within the Dodd-Frank Act, call for merchant banks to pay card issuers no more than 12 cents per transaction in debit interchange. Final comments are due Feb. 22, and the rules would be implemented July 21 (see proposal).

A hearing before the House Financial Institutions and Consumer Credit Subcommittee is slated for Feb. 17. Scheduled witnesses include Federal Reserve Gov. Sarah Raskin; David Seltzer, vice president and treasurer of 7-Eleven Inc.; Josh Floum, Visa Inc. general counsel; Gus Prentzas of New York-based Pavilion Florals; and David Kemper, CEO of Kansas City, Mo.-based Commerce Bank N.A., a unit of Commerce Bancshares Inc.

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