Capito Introduces Legislation To Delay Interchange Rule, Proposes Study To Assess Potential Impact On Consumers

Capito Introduces Legislation To Delay Interchange Rule, Proposes Study To Assess Potential Impact On Consumers

“This is a fair approach that allows all parties to benefit from further information about the practical effects the rule will have on everyone”

WASHINGTON—Today, Congresswoman Shelley Moore Capito, R-W.Va., Chairman of the Subcommittee on Financial Institutions and Consumer Credit, introduced legislation to delay the proposed final rule on interchange fees, also known as ‘swipe fees,’ in order to allow a comprehensive study of how the rule will affect consumers, small financial institutions, and merchants. 

“My bipartisan bill provides for a one year delay and allows the Federal Reserve, FDIC, OCC, and NCUA to study potential unintended consequences of capping the interchange fee at 12 cents then make recommendations for changes, if necessary.   Simply put, the stakes are too high for consumers to let this rule go forward without answering some of these critical questions,” stated Capito.

Last December, the Federal Reserve proposed to cap debit card swipe fees at 12 cents per transaction.  Current fee averages about 44 cents per transaction.  The Federal Reserve’s proposed rule was out for public comment from December 2010 through February 22, 2011.  The final rule is scheduled to be published April 22, 2011 and it will be implemented by July 2011. 

Numerous experts including the Federal Reserve, the FDIC, and the Consumer Federation of America have raised concerns about the impact capping the swipe fee at 12 cents will have on consumers.  Experts worry that small financial institutions will have to resort to increasing fees on checking accounts and other services which will hurt consumers in the short term and the long term. 

“No one wins when consumers are levied with fees or even forced out of the banking system altogether—not consumers, not banks and not merchants.  With unemployment hovering around 10 percent and our economy slow to recover, we cannot afford to implement a rule with far-reaching consequences that may harm the economy.  This is a fair approach that allows all parties to benefit from further information about the practical effects the rule will have on everyone,” concluded Capito. 


Federal Reserve

Federal Reserve Chairman Ben Bernanke responded to a question about the small issuer exemption from Sen. Tester (D-MT) on February 17, 2011: “it may not be the case in practice that they (small issuers) will be exempt.”

Fed Governor Sarah Bloom Raskin told the House Financial Services Committee on March 2, “ there are, I think, legitimate questions regarding how in fact small issuers are going to in essence have this exemption work in their favor because there is indeed no statutory authority provided in the law that would permit the networks to in fact engage in two tiered pricing.”  She also said the Fed was uncertain about how much of the savings would be passed to consumers and how much banks would boost their fees.

Comptroller of the Currency

In their comment letter to the Federal Reserve, the OCC said:

“Section 1075 (Durbin Amendment) clearly is designed to limit the types of costs that debit card issuers can recover through fees.  Within that framework, however, we believe the proposal takes an unnecessarily narrow approach to recovery of costs that would be allowable under the law and that are recognized and indisputably part of conducting a debit card business.     This has a long-term safety and soundness consequences –for banks of all sizes- that are not compelled by the statute.”

Federal Deposit Insurance Corporation

In their comment letter to the Federal Reserve, the FDIC said:

“Specifically, we are concerned that these institutions may not actually receive the benefit of the interchange fee limit exemption explicitly provided by Congress, resulting in a loss of income for community banks and ultimately higher banking costs for their customers.”

Consumer Federation of America

CFA Comment letter to the Federal Reserve:

“In developing these pricing standards, we urge the Federal Reserve to ensure that financial institutions are reimbursed for legitimate, incremental costs associated with the provision of debit cards. If such compensation does not occur, these institutions could increase debit card and other related banking charges on their least desirable and most financially vulnerable consumers: low- to moderate-income (LMI) accountholders.

“We also urge the Federal Reserve to pay close attention to how this rule would affect the financial viability of small depository institutions, especially credit unions, which often provide safe, lower-cost financial products to millions of Americans.”


NAACP letter to Speaker Boehner:

“Given the complexity of this issue, we believe that it should be further examined fully to ensure that it does not have a negative impact on the communities that it was meant to help.   We believe this rule should be thoroughly and expeditiously reviewed prior to implementation, allowing a full and appropriate impact study to be performed to ensure that it will not raise fees or otherwise harm at-risk communities, including communities of color.”

National Community Reinvestment Coalition

NCRC comment letter to the Federal Reserve:

“We would be concerned with a rule that would inadvertently reduce access to debit cards and other basic banking services to low- and moderate-income borrowers. It is therefore imperative to subject this proposal to careful study and analysis.”