The Federal Reserve was not “legally required” to reopen debit card interchange caps and should not have done so, former Fed Vice Chairman for Supervision Randal Quarles recently told IntraFi’s Banking with Interest podcast. The Fed in October proposed to significantly lower the cap on debit card interchange fees earned by banks and institute a new review process by which the cap would be revised every two years without public comment.
“I don’t think that the Fed was legally required” to further lower fees, said Quarles, who was vice chairman from 2017 to 2021. “Under the Durbin Amendment, there are a variety of very clear interpretive practices that would have said, ‘We’ve done what we needed to do. We don’t need to go further in ratcheting the fees down.’ And I think the Fed should have taken that path having recognized that there is no government interest in the outcome.”
Current Fed Vice Chairman for Supervision Michael Barr has asserted that the Fed is required to keep debit card fees “reasonable and proportional,” while the American Bankers Association and other financial services associations believe that the Fed discharged all its duties under the Durbin Amendment by writing a 2011 rule (Regulation II) and that subsequent rulemakings are discretionary.
Asked about the proposal, Quarles said the intent behind the creation of the cap in the Durbin Amendment might have been understandable at the time of the Dodd-Frank Act, but the evidence since then shows that Durbin has not helped consumers. “We now have a lot of experience with the Durbin Amendment and its implementation, which has definitively shown that this is simply transferring surplus from the banks to the retailers,” he said.
