Airing of Grievances: Banking Association Heads Continue to Blast Proposed Rule On Interchange Fees

Entitled "The Effect of Dodd-Frank on Small Financial Institutions and Small Businesses,” Wednesday afternoon’s hearing before the House Financial Services Subcommittee on Financial Institutions & Consumer Credit was intended to provide a venue for banking industry leaders to decry the oft-maligned Consumer Financial Protection Bureau (CFPB) and other potential regulatory hurdles stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111-203, H.R. 4173).

Interchange fees, however, appeared to be all banking industry leaders wanted to talk about—providing the latest signal that the Congressional debate over the controversial “Durbin Amendment” is far from over.

In 2010, the National Association of Federal Credit Unions (NAFCU), the Independent Community Bankers of America (ICBA) and other influential banking industry groups waged a full-scale—albeit unsuccessful—lobbying effort to strip from the Dodd-Frank legislation an amendment offered by Sen. Richard Durbin (D-IL) that would require the Federal Reserve to enact rules to limit the interchange fees paid by retailers and merchants for the acceptance of debit card payments. Although the Durbin amendment attempted to limit the exposure to credit unions and community banks through the inclusion of an exemption for banks with assets of $10 billion or less, witnesses at Tuesday’s hearing say a proposed rule issued by the Fed in December limiting fees from the current 44-cent average to 7-12 cents per transaction would have a “potentially devastating” effect on small financial institutions and consumers.

NAFCU representative John P. Buckley Jr., President and CEO of Gerber Federal Credit Union in Michigan, joined other witnesses in repeating comments made by Fed Chairman Ben Bernanke during a Senate hearing in February that despite the exemption, the new interchange fee limits may force small banks to lower such fees charged to merchants and retailers in order to compete with large banks that will face fee restrictions under the Fed’s rule.

"It is possible that exemption may not be effective in the marketplace," Bernanke told Senate lawmakers last month. At the same hearing, Federal Deposit Insurance Chairwoman Sheila Bair echoed Bernanke’s concerns, stating that she is “skeptical” that small banks will be shielded from the rule.

According to Buckley, President and CEO of Gerber Federal Credit Union in Michigan, the proposed rule is projected to cost Gerber FCU $210,000 per year in lost revenues. For the broader industry, Credit Union National Association President O. William Cheney estimated an annual effect of $1.5 billion in lost revenues.

The Financial Institutions & Consumer Credit subcommittee dedicated an entire hearing on February 17 to the Durbin amendment, in which Fed Governor Sarah Bloom Raskin testified. Raskin acknowledged the potential unintended consequences of the proposed rule and suggested that the final rule—slated for April—may be modified.

If last year’s Dodd-Frank debate proved anything, it’s that the credit union and community banking lobbies have a broad and influential reach in all 50 states and all 435 congressional districts. This issue should receive continued bipartisan attention in the days ahead.

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