An amendment offered to the Economic Development Revitalization Act, S 782, by Senators John Tester (D-MT) and Robert Corker (R-TN) to delay implementation of the Dodd-Frank interchange fee provisions in Section 1075 for up to one year while the Fed and other financial regulators study the impact of the provisions on small financial institutions did not receive 60 votes in the Senate and was defeated. The Amendment received 54 votes, with 45 against.
According to Senator Tester, the amendment outlined the topics the study should address, including taking a closer look at all of the actual costs associated with debit card transactions, the impact on consumers, and whether an exemption for small banks as proposed in the interchange amendment last year will actually work. June 7, S3529. The host legislation, S 782, would reauthorize the Economic Development Administration and has strong bi-partisan support.
Section 1075 of Dodd-Frank 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. The draft regulations under Section 1075 propose to cap the interchange fees at the largest financial institutions at 12 cents per transaction, give or take some conditions such as the prevention of fraud, which Dodd-Frank built into the law.
The six-month study mandated by the Tester-Corker Amendment would be been conducted by the Federal Reserve, the National Credit Union Administration, the FDIC and the OCC. If, after the study, if the Fed and at least one of the other agencies involved determine that the current rules do not take into account all costs, that the rules may harm consumers, or that the exemption meant to protect small banks and credit unions will not work, then the Fed has six more months to rewrite the rules considering all costs. If the agencies find that the rules consider all costs, consumers would not be harmed, and that the small issuer exemption will work, then the currently pending rules would move forward.
In remarks on the Senate floor, Senator Diane Feinstein (D-CA) said that the Tester-Corker Amendment was flawed in that the study it mandated only involves banking agencies, thereby excluding consumer protection agencies, like the Consumer Financial Protection Bureau and the Federal Trade Commission. Since the intent of Section 1075 is to benefit consumers, reasoned Senator Feinstein, consumer agencies should be involved in the study to ensure that consumer interests are protected. Cong Record, June 8, 2011, S3588.
Senator Feinstein also mentioned that the Federal Reserve is in the process of considering over 11,000 comments submitted on the proposed interchange regulations. Senator Feinstein cautioned that Congress should not jump in the middle of that process, but rather should wait to see what the professionals at the Fed come out with, and then evaluate whether or not the final rule is fair and equitable for merchants, banks, and especially consumers. The Senator cautioned that it would be bad precedent for Congress to start cutting off a rulemaking process in the middle.