Proposed Fed rule will have unintended consequences for consumers, community banks, credit unions
Mar 15 2011
(U.S. SENATE) – Senators Jon Tester (D-MT), Bob Corker (R-TN), Jon Kyl (R-AZ), Ben Nelson (D-NE), Tom Carper (D-DE), Pat Roberts (R-KS), Chris Coons (D-DE), Mike Lee (R-UT), and Pat Toomey (R-PA) today introduced legislation to protect consumers, small businesses and rural and small community banks and credit unions from a proposed rule regarding transaction fees on debit cards.
“Price controls are almost always problematic,” said Lee, who is Ranking Member on the Judiciary’s Subcommittee on Antitrust, Competition Policy and Consumer Rights. “If the rule remains in place, retailers, banks and consumers will lose out in the long run through higher costs and limited choices. I believe we can form a better solution that does not unnecessarily burden small businesses and local financial institutions or pass fees on to the customer. The delay in implementing the rule will allow us to find options that benefit everyone.”
The bipartisan coalition of Senators today introduced the Debit Interchange Fee Study Act in response to concerns of the impact of a proposed rule from the Federal Reserve on consumers and small businesses.
The Federal Reserve is proposing a rule that will cap the interchange fee per debit card transaction at 12 cents, regardless of the size of the transaction. Consumer advocacy organizations have raised concerns that this proposed rule will significantly impact consumers because small banks may limit the size of a debit card transaction or end free checking services.
The Debit Interchange Fee Study Act suspends implementation of the proposed rule and calls for a two year study of debit interchange fees.
“The stakes are simply too high to move forward with this rule without a closer look at the impact on consumers, credit unions, community banks, and the small businesses and jobs they sustain” said Tester, a member of the Senate Banking Committee. “That is why we need to make sure we stop and study these proposed rules before implementing anything.”
“The federal government shouldn’t be telling private companies what they can charge for goods and services; that’s price fixing, and that’s exactly what the Durbin amendment does,” said Corker, a member of the Senate Banking Committee. “The hastily passed Durbin amendment will have numerous unintended consequences for debit card users, including reduced access and increased fees. I’m sympathetic to retailers’ concerns and am open to a better solution, but the Durbin amendment isn’t the answer.”
“I’m concerned that the proposed rule dictating debit card interchange fees willhave a harmful effect on consumers, small banks and credit unions,” Carper said. “This legislation will allow Congress and federal regulators to take a thoughtful pause and avoid unintended consequences.”
“The government should not be in the business of setting price controls on any product and implementing this rule would set a precedent for that,” said Roberts. “We need more time to sufficiently review this regulation, because failing to get it right ultimately means it will fall on the backs of consumers, merchants and financial institutions, including our small community banks. And at a time when Americans are watching every penny, we cannot afford to let that happen.”
"The concerns raised by Fed Chairman Bernanke and FDIC Chairman Sheila Bair about the potential harm to credit unions and community banks require further study of the unintended consequences of this rule," Coons said. "Any government regulation of interchange fees should yield some tangible consumer benefit, but the Fed's current cap offers no such guarantee. Further study will help yield a more thoughtful, long-term solution."
A copy of the S. 575 can be found online HERE.