Thursday, December 30, 2010

Rep. Bachus Urges Fed to Go Slow on Regulations Implementing Dodd-Frank Interchange Fee Provision

The incoming Chair of the House Financial Services Committee has voiced concern over pace of the Fed’s efforts to implement the derivatives regulatory regime mandated by the Dodd-Frank Act. In a letter to Fed Chair Ben Bernanke, Rep. Spencer Bachus (R-AL) questioned the feasibility of the required nine-month deadline under Section 1075 of Dodd-Frank to adopt rules on debit card interchange fees and routing. Given the broad scope of this required rulemaking and the enormity of its potential impact, Rep. Bachus doubted that the extremely short timeframe would be sufficient to produce thorough and thoughtful final rules that consider the myriad perspectives of all affected parties. He cautioned that hastily written rules may end up doing more harm than good to consumers and have negative effects on competition in the marketplace. He added that proceeding cautiously with the regulations will also allow Congress the opportunity to conduct its own review of the intent and impact of the changes enacted in Section 1075 as part of its vigorous oversight of the Dodd- Frank Act. The letter was signed by Rep. Jeb Hensarling (R-TX), the incoming Vice-Chair of the oversight committee.

Section 1075 requires that the Fed issue by April 21, 2011 three final rules on interchange fees regarding a reasonable and proportional debit fee structure, fees for fraud prevention on debit transactions, and debit transaction network fees. There is a statutory exemption for small issuers under $10 billion in assets from the new debit fee rules.Section 1075 also requires the Fed to produce new rules regarding the routing of transactions on payment card networks by July 21, 2011.

These rules pose important public policy questions, said the new Chair, and there are concerns regarding whether the Fed has had the time and input it needs to best address the intent of the statute. He noted that Congress devoted little if any time to considering the impact of these changes before Section 1075 was enacted into law, with the House Financial Services Committee holding only one hearing on the general subject of interchange over the last two years and none on the subject of routing. Additionally, some concerns have been raised that, despite its intent, the small issuers' exemption may end up creating an unlevel playing field in the industry that hurts small issuers like community banks and credit unions by making their cards more expensive for merchants to accept. In the Chair’s view, such an outcome would run contrary to the general goal of benefiting consumers and promoting competition that we all share.