A Federal Reserve proposal to lower the cap on debit card interchange fees would harm consumers, banks and credit unions, the American Bankers Association and eight bank and credit union associations said today in joint comments to the Fed. In addition, the proposal would violate the law by prohibiting banks from recovering the costs they incur in providing affordable debit card programs, the associations said.
The letter urged the Fed to rescind its proposal to update Regulation II. “If the proposal is finalized as proposed, it is estimated consumers would pay an extra $1.3-$2 billion annually in higher account fees,” they said. “Nor is it likely that this harm would be offset by lower retail prices. There is no evidence that merchants passed on cost savings from capped interchange fees to consumers after the 2011 rule was promulgated, and thus, it is unlikely that merchants would pass on any additional savings realized if the proposal is finalized.”
The associations said that interchange revenue helps fund low- or no-cost deposit account programs like Bank On-certified accounts; that resources used to mitigate fraud would be restricted; and that small banks and credit unions would bear the brunt of the effects of lowering the caps. They also said the proposal is not grounded in fact and would violate the Durbin Amendment and the Constitution as it is not designed to allow issuers to recover their costs and a reasonable rate of return. “Courts have repeatedly held that price-control regulations that fail to allow a reasonable return are unconstitutional,” they said.
