The banking industry stands to lose billions in debit card transaction fees after losing one of its biggest lobbying battles this year—but for the banks, that was just Round One.
The industry had for months lobbied lawmakers to kill or delay regulations limiting the fees that banks get from retailers whenever a debit card is used. Earlier this month, a bill to delay the rules failed to pass in the Senate—disappointing the banks and delighting retailers who will save some revenue to either pocket, pass on to consumers in lower prices, or spend on their businesses some other way.
But the banking industry hasn’t given up.
“The fight continues,” the president of the American Bankers Association, Frank Keating, wrote in a letter to members earlier this month. “With every battle the banking industry is becoming a stronger political force.” Keating vowed to continue putting pressure on the Federal Reserve, which wrote the rules, and on Monday he fired off a letter to the Fed [PDF] urging revisions to the rules “to mitigate the harms” to banks.
In arguing that a 12-cent cap on debit transaction fees was too low, the trade group urged the Fed to reconsider how much it costs the banks to process individual debit transactions, arguing that a broader range of costs—such as overhead costs, fraud losses, and the cost of customer service reps to resolve disputes—should be factored into the calculations. The Fed, as we’d noted earlier, excluded certain infrastructure costs when it determined what would be a reasonable fee cap, arguing that they would be incurred even if a particular transaction didn't occur.
The group also requested that they be given a three-month window to comply with the rules, which are scheduled to go into effect July 21. The Dodd-Frank financial reform bill originally had this window built in—the rules were scheduled to be finalized in last April and go into effect in July—but regulators put off the first deadline after industry lobbying.
Failure to ease the rules and minimize the harm to banks “will have dire consequences,” Keating wrote, saying that banks will lend less and start charging for certain services, thus driving out low-income consumers.
(It's worth noting that bank lending is already down, and low-income consumers often end up paying for “free” checking, which often requires direct deposits or minimum amounts.)
Community banks and credit unions are technically exempt from the rules that cap debit transaction fees for the biggest banks, but they’ve opposed the rules anyway—afraid that differences in fees will cause merchants to start discriminating against their debit cards. Keating stressed this point as well in his letter, noting the “great harm to banks throughout the country, and particularly to community banks.” (Read the full letter.)
According to the Wall Street Journal, industry lawyers and executives are waiting for the final rule, and if the rules aren’t changed, are likely to sue.
