WASHINGTON—NAFCU, CUNA and several trade associations have sent a letter to the Federal Reserve citing concerns around interchange and expressing support for the board’s proposal to extend, without revision, current recordkeeping procedures associated with Regulation II—which covers debit card interchange fees and network routing exclusivity.
Of note, the trade groups expressed concern that due to the Federal Reserve’s methodological decisions, capped interchange does not cover the costs it is intended to cover for many issuers, and asked the board to recommend to Congress repeal of the Durbin Amendment.
The organizations reiterated major issues around the Durbin Amendment distorting the “debit and consumer checking markets.”
The organizations stated financial institutions have used interchange fee income as a way to cover costs and provide important consumer financial services such as free checking accounts and that under the Durbin Amendment the Fed was required to regulate debit interchange fees by imposing an interchange cap.
Merchants have primarily focused on “authorization, clearance and settlement (ACS) costs in their demand for a lower interchange fee cap while disregarding other issuer costs, along with the many merchant benefits of debit card acceptance,” wrote the group.
Cap Would Drive Some Issuers ‘Out of the Industry’
The organizations advised the board that lowering the interchange fee cap would drive “small- and medium-volume card issuers out of the industry,” and could result in negative impacts for consumers, financial institutions, and competition in the marketplace. The capped interchange fee has also led to increased small-ticket transactions for small businesses proving to be a detriment to local consumers, the groups added.
According to the groups letter, “the board’s ACS figure underestimates the true cost of issuing debit cards because it omits numerous fixed and variable cost components,” meaning the current interchange cap does not fully cover the cost it is intended to cover for many card-issuing banks. As a result of the cap, community financial institutions with less than $10 billion in assets have experienced a 21% decrease in per-transaction debit card revenue from 2011 to 2019, according to the board’s Debit Card Issuer Cost Study.
In addition, the organizations offered support for the board’s proposal to maintain existing procedures in Regulation II, but urged the board to reconsider its recent proposal to reopen Regulation II and to “resist requests from retailers for further changes that would increase the regulatory burden associated with the Durbin Amendment to the Dodd-Frank Act.”
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