Bank and card industry leaders wasted no time reacting to the 12-cent cap on debit card interchange fees the Fed approved yesterday at 3:30 p.m. (the rules are subject to a comment period and won't be final until April). The Federal Reserve was required to come up with some kind of limit on such fees by the Durbin Amendment to the Dodd-Frank Act, but had discretion as to how much. Many feel the regulators have gone too far.
The American Bankers Association argued that the fee limits will increase the cost of banking services for consumers. "They essentially relieve retailers of paying their fair share for a card payments system that offers them tremendous benefits," said Edward L. Yingling, president and chief executive officer, in a statement. "This kind of government interference in marketplace pricing is a big concern for banks of all sizes, despite illusory attempts to exempt smaller institutions, and constitutes bad public policy."
Yingling said the rules were the result of retailer lobbying and "will result in diminished revenue that banks currently use to fight fraud, make loans, and provide low-cost basic banking services. They will also discourage further innovation in the payments system."
Similarly, Karen Thomas, senior executive vice president of government relations and public policy at the Independent Community Bankers of America, called the fee and routing restrictions "government price-fixing" that "will benefit big-box retailers while passing the buck on to consumers and disadvantaging community banks." She said the rules will lead to more consumer fees, fewer product choices and greater consumer confusion regarding card acceptance. "As a result of the Durbin Amendment, the concept of 'free checking' is likely a thing of the past," she said.
Although banks with less than $10 billion in assets are exempted from the rule, this is of no help to small banks, Thomas said. "Today, trillion-dollar institutions and small community banks all operate from the same basic playbook to offer debit card services to their customers," she said. "It is naive to think that a reduction in debit interchange of the scale proposed today to large issuers will not be felt with equal pain by those purportedly 'carved out' from the provision."
Visa also complained in a statement that "the Federal Reserve’s proposal includes artificial caps on debit interchange that do not realistically reflect the value of card acceptance and do not reflect the actual costs of running a secure, reliable and efficient debit network. Further, the proposed routing and exclusivity alternatives put retailer profits ahead of consumer protection, choice and convenience."
And MasterCard said the proposal fails to consider the costs incurred by issuers to operate debit card programs. "If adopted as proposed, the regulations would shift merchant costs directly to consumers," the card network commented in a statement.
All these parties plan to comment on the rule; comments are due at the end of January.