Friday, March 04, 2011

Two Senate Chairs Urge Fed to Follow Legislative Intent in Implementing Dodd-Frank Interchange Rule

In a letter to the Fed, Senator Carl Levin (D-MI) and Senator. Debbie Stabenow urged the regulator to follow the clear legislative intent when implementing the interchange fee provision of the Dodd-Frank Act. Specifically, they asked the Fed to consider the potential impact on small issuers and ensure that the $10 billion exemption provided by Section 1075 of Dodd-Frank is effective. Similarly, they urged the Fed to consider the fraud-related costs and to make every reasonable effort to mitigate any potential impact on access to banking services for low- and middle-income families and businesses. Senator Stabenow is Chair of the Agriculture Committee and Senator Levin is Chair of the Armed Services Committee. Section 1075, authored by Senator Richard Durbin (R-IL), is designed to level the playing field for many merchants and other businesses that rely on electronic payment systems to process customer purchases.

In an earlier
letter to the Fed, the American Bankers Association expressed concern that the small bank exemption would, in practice, not work as business would flow to the lowest cost option, even if that lower cost was due to government price controls. Regardless of how the Board ultimately implements the interchange fee provision of the debit card amendment, said the ABA, the interchange rule will have unintended consequences adverse to consumers, banks, merchants and businesses, including a decrease in free and low-cost checking account services and disruption of a valued, safe, efficient, and reliable payment system. The rule may also lead to a gradual reduction in the quality level of fraud prevention and a shift of fraud losses back to merchants and businesses that causes a negative change in the customers’ debit card use experience.

The banking association is also concerned that the rule will chill innovation and investment in payment system products. The Board should also recognize in finalizing the rule that small institutions will be significantly impacted notwithstanding what the ABA called a "technical" exemption for institutions with assets less than $10 billion.