Friday, December 31, 2010

Thirteen Senators Tell Fed of Concerns with Implementation of Dodd-Frank Interchange Fee Provisions

Thirteen US Senators, including leading members of the Banking Committee have expressed concern with the consequences of replacing a market-based system for debit card acceptances with a government-controlled system pursuant to Section 1075 of the Dodd-Frank Act. In a bi-partisan letter to Fed Chair Ben Bernanke, the senators said that having the government fix prices in any venue is a bad idea. As the Fed implements Section 1075, the senators want to ensure that all costs to the issuers and economic value to the merchants are considered in the regulations. The senators urged the Fed to take the time to consider all the implications of implementing Section 1075 and exercise the discretion granted by Dodd-Frank to minimize negative consequences. The letter was signed by Senator Richard Shelby (R-AL), the Banking Committee’s Ranking Member, and two influential members of the committee, Senators Mark Warner (D-VA) and Bob Corker (R-TN).

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.

During what the senators described as a ``very limited debate’’ on the Senate floor, the debt interchange fee amendment was presented as a pro-consumer provision that would lower costs for customers who use debit cards. However, since passage of Dodd-Frank Section 1075, analyst reports for retailers likely to be affected by the provision make no mention of any benefits to consumers. Indeed, many predict that consumers will be faced with additional bank fees as the rule is implemented.

In addition, the senators said that there is a misconception that the small bank exemption will level the playing field for financial institutions under $10 billion. They are concerned that the statute will make small bank and credit union debit cards more expensive for merchants to accept that those issued by larger financial institutions and would likely put them at a disadvantage compared to large issuers