The Federal Reserve’s proposal to revise Regulation II to lower debit card interchange fees is a “huge concern” for community banks and could push many Americans into being unbanked, Rep. Andy Barr (R-Ky.) said during an interview on IntraFi’s Banking with Interest podcast.
Barr is a member of the House Financial Services Committee and chairman of the Subcommittee on Financial Institutions and Monetary Policy. Asked about the biggest concerns he hears from bankers, the lawmaker said they are worried about the cumulative effects of the large number of regulations coming out of Washington, D.C. As one example, he pointed to the Fed’s Reg II proposal, noting that the creation of the cap by the Durbin Amendment reduced debit card rewards programs and forced small banks to take away free checking or increase fees.
“This proposal that is still pending from the Federal Reserve would further push many Americans into the category of the ‘unbanked’ or the ‘underbanked,’” Barr said. “The Reg II proposal would lower the limit that banks could charge by 30% to 40% from current levels. That is a recipe for more fraud because it means banks will not be able to invest in the fraud prevention that the interchange fees support.”
Barr also expressed concern about the negative effect the proposal would have low-cost BankOn program, which has brought millions of Americans into the banking system. Concerns have come from lawmakers of both parties, he said.
“There are a lot of unintended consequences with this Reg II proposal, and I don’t think we need to be further enriching big-box retailers who really haven’t passed on the savings of Durbin to their customers,” Barr said.
