Hearings on Fed Debit Card Interchange Rule

Government Regulators acknowledge that the Fed’s debit card interchange rule could harm consumers and small financial institutions, and should be examined more carefully:

“It is possible that because merchants will reject more expensive cards from smaller institutions or because networks will not be willing to differentiate the interchange fee for issuers of different sizes, it is possible that that exemption will not be effective in the marketplace.”

“We agree with you. This — this really needs to be fixed.”

“The likelihood of this hurting community banks and requiring them to increase the fees they charge for accounts is much greater than any tiny benefit retail customers maybe get.”

“The statute limits the — the interchange fee to the incremental cost associated with an individual transaction, which does not cover the full cost, if you include some fixed costs associated with setting up a debit card program, for example.  So it's certainly possible that some of those costs would get passed on to consumers in some -- in some way, for example, a charge for a debit card or something like that.”

“If they are forced down to the 12 cent level, that is going to — to reduce the income that they get for debit cards, so I think they're going to have to make that up somewhere, probably by raising the fees that they have on transaction accounts... That would not be helpful for consumers and that might be an unintended consequence.”

“I think the full policy ramifications, who's paying for what, who's going to pay more, and who's going to pay less under this is something that maybe wasn't dealt with as thoroughly as it might have been.”

What Senators are Saying about the Fed’s Proposed Debit Card Rule:

“But there's no question that our smaller institutions are going to be impacted in a big way. And I think we all know that and I hope that we will endeavor somehow to fix that here in Congress.”

“It would seem to me that there's going to be undue harm done to smaller banks when the retailer looks at this and says, ‘You know what? I'm going with the smallest interchange possible, because it's going to help my bottom line.’”

“In the rush to comply with the unrealistic deadlines set in Dodd- Frank, the regulators have had to focus on speed rather than deliberation. And while our regulators will do their best to comply with the deadlines, Congress, I believe, should seriously examine whether the speed of the process is undermining its integrity. There are early indications that it is.”

“You're starting to hear feedback that there may actually be some practical problems with implementing [the exemption for small financial institutions with assets of less than $10 billion].”

“[I]t seems to me that it's an impossibility that if a rate is set for the larger institutions, it is not going to impact the smaller institutions as it relates to interchange rules.”

“But there's the problem with price-fixing. We can't guarantee that, can we? We can't guarantee that a single consumer will get any benefit from that legislation.”

“The fairness of us price-setting at some rate that only as a transmission cost seems to me to be incredibly in error. We also are going to be forcing people into credit cards over time. I mean, people that don't have credit are going to be forced into credit cards . . . It just seems like to me the whole issue is very perverse in something that was very short-sighted on our part.”

“Dodd-Frank may not raise taxes directly, but consumers will soon feel its cost with a pie — pay higher regulatory fees, higher compliance costs and higher prices for financial services.”

“Not only national firms are multinational players, they're some of the biggest economic players in the world. This isn't Joe's Hardware in somewhere in Nebraska ... Really, what you're doing is moving money from here to here, and it's the big players that are going to see the benefit of that, the big retailers.”

Members of Congress from Both Parties Agree: The Fed needs to delay the implementation of its debit card interchange rule:

“If there's one thing that I hope you will take from this hearing this morning, it is that a delay in the implementation of this rule is definitely in order. . . . I think we owe it to the American people, to these institutions, to be able to delay and make sure that we get this rule right.”

 “I would like for you to take more time, I would like for you to consider the impact that this is going to have on small to medium sized banks and on their ability to add capital to their banks.”

“[T]here is at a minimum some confusion about the provision in this rule and if done incorrectly, this could be the final nail in the coffin for many of the smaller financial institutions, I think, that have been decimated by a weak economy and piles of new regulations from Washington.

“In relation to the comment period, some organizations, some constituents have suggested that the process was not as thorough as it should be, that the Federal Reserve should have had more time to study the issue and to survey a wider set of financial institutions and retail establishments.”

“I think there are a lot of costs that were talked about, but really are not being evaluated. And we need to get them all. If we're going to do this, we need to do it right.”

“I haven't been able to see how we assure that the ultimate beneficiary that we were advocating for, that we all should be advocating for, consumers, really get the benefit of this.”

“I feel that the current timetable for implementing [these] interchange rules is not sufficient for those who are affected — whether you're the consumer or the retailer or the bank…it's going to be very difficult for them to adjust.”

“Your job was to figure the impact on the consumer, and on the retail industry, and on the banking industry. And just because they were exempted it does not mean that they were impacted. So, I think that your survey and your studies and flawed and you should admit that.”

“I wish we would have the time before we passed the bill to have this kind of an intensive kind of debate and conversation and it might have cleared it up.”