Compromise May Be in Works on Debit Interchange (Misc News: May 11, 2011)
The Federal Reserve is working on a higher cap on debit interchange fees, meant as a compromise between retailers and financial institutions, including credit unions.
Also on Wednesday, CUNA and three other bank and credit union trade groups sent a letter to Capito taking issue with merchants' claims that they will not discriminate against debit cards from small issuers such as credit unions, according to CUNA News Now.
Quoting several unnamed sources, Credit Union Journal said in a report Wednesday that the Fed planned to propose a cap that is higher than the seven to 12 cents that it initially proposed. Click here to read the Journal's story.
Those same sources said that the higher cap was meant to satisfy some lawmakers who want to avoid voting on a bill to delay the rule. Bills to delay the Durbin Amendment to the Dodd-Frank Consumer Protection and Wall Street Reform Act, passed last summer, have been introduced in both houses of Congress. The House version of the bill, offered by Rep. Shelley Capito, R-W.Va., has 93 co-sponsors, including seven from Michigan, which is close to the 100 Capito says she needs to bring the bill to a vote. The Senate bill, offered by Sen. Jon Tester, D-Mont., has 16 co-sponsors. The financial institutions community believes it has the support of about 52 senators, still shy of the 60 needed to break the filibuster that Sen. Dick Durbin, the original sponsor of the bill, has promised.
The bill, passed last July, required that the Federal Reserve issue its final rule by April 21, but Fed Chairman Ben Bernanke said told Congress in advance that it would miss that deadline. The rule is set to go into effect on July 21.
In their letter to Capito, the financial groups pointed to a news report last week where a prominent technology company boasted that it was developing new "steering services" for merchants to encourage the use of certain cards over others. "This report supports Federal Reserve Board Chairman Ben Bernanke's testimony before the Senate Banking Committee that the small issuer exemption may not work in the marketplace," said the letter, signed by CUNA, the American Bankers Association, the Independent Community Bankers Association of American, and the National Association of Federal Credit Unions.
The act includes a provision exempting card issuers with less than $10 billion in assets from the debit interchange fee cap.
"It is remarkable that the same groups advocating for weakened network operating rules would now hide behind them in their defense of government price controls," the four trade groups said of the merchants. "Merchants know that enforcing these rules among the millions in their ranks is impossible."
The groups said that merchants have no incentive to abide by the network antifraud rules because they bear no liability for card fraud.
"The merchants opposing your legislation would have Congress, community banks and credit unions rely on their 'commitment' that everything will work out fine in the end," CUNA stated. "Unfortunately, we, and many market experts, do not believe this to be true."