Concerns mount about debit-card fee caps
New limits on debit-card fees were sold to lawmakers last year as a pro-consumer move. But as the deadline nears to finalize the rules, concerns are mounting that the caps could push poorer people out of the banking system.
Critics say that by limiting fee revenue, the rules could drive banks to drop free checking and other services that poor customers rely on.
Federal Deposit Insurance Corp. Chairman Sheila Bair and the NAACP are the latest to sound the alarm.
“We are especially concerned about the potential impact the proposed rule could have on the ability of low- and moderate-income consumers to gain access to affordable small bank products and services,” Ms. Bair said in a letter sent Thursday to Federal Reserve Chairman Ben Bernanke.
Such concerns could help the banking industry’s efforts to delay the rule’s implementation.
Sen. Jon Tester (D., Mont.) is planning to introduce legislation with bipartisan support as early as next week that would postpone the rule until further study can be done. House Republicans are readying legislation to force a two-year study period.
The Dodd-Frank financial law directed the Fed to cap “swipe fees” that debit-card issuers charge merchants each time a customer pays with a debit card. The Fed put out a draft rule in December that would cap the fees at 12 cents per transaction, compared with the current average of 44 cents. The central bank is supposed to put out a final rule in April.
Banks opposed the swipe-fee cap from the start and have mounted an aggressive lobbying campaign in support of delaying implementation of the Fed rule or repealing it altogether. They argue that the regulation amounts to price fixing and wouldn’t allow them to recoup the costs of providing debit-card services.
Retailers, which favor the Fed rule, dispute the banks’ argument. “It strikes us that these claims of fee increases are nothing more than a scare tactic,” said Brian Dodge, a senior vice president at the Retail Industry Leaders Association.
Retailers argue that the current system isn’t competitive and hurts consumers by forcing merchants to raise their prices to pay hefty swipe fees.
The Dodd-Frank law included a fee-cap exemption for small banks and credit unions, but those institutions say the exemption won’t work in practice and small banks would be forced to lower their interchange fees to remain competitive.
Regulators, including Mr. Bernanke and Ms. Bair, have also raised doubts that the exemption would be effective.
Earlier this week, Hilary Shelton, Washington bureau director of the National Association for the Advancement of Colored People, said regulators should study the potential impact of the proposed rule to guarantee it wouldn’t push poor and minority consumers out of the banking system.
Neither Mr. Shelton nor Ms. Bair commented on whether the rule should be delayed. But the National Community Reinvestment Coalition, an advocacy group focused on ensuring equal access to credit and banking services, urged the Fed to withdraw its proposal.
Mr. Tester’s proposal to delay the rule would face a major hurdle in the Senate: Democratic Sen. Richard Durbin of Illinois, who holds the No. 2 leadership post and is the author of the contested provision. He remains unbowed in his support for the Fed’s rule and his belief that it will benefit consumers.
In a speech on the Senate floor, Mr. Durbin accused small banks and credit unions of crying wolf about the exemption not working: “I know the small banks and credit unions are also lobbying on the Hill, saying that interchange reform will hurt them. For years, they have been making this argument against any type of reform.” – Dowjones
Tags: debit cards, debit-card fee caps
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