Journalism in the Public Interest

At Behest of Banks, Fed Relaxes Debit Card Regs in Final Rule

Putting an end to one of the biggest lobbying fights of the year, the Federal Reserve yesterday finalized rules capping the transaction fees that merchants pay to banks whenever a customer makes a purchase with a debit card. As it turns out, neither the banking industry nor the retail sector are too happy about the final result.

The finalized rule caps debit card fees at 21 to 24 cents per transaction for banks with more than $10 billion in assets. Yes, that’s about half of what current fees are, but it’s double the 12-cent cap that the Fed had originally proposed in December.

So, what’s happened in the months since?

We’ve been following the fight, but here’s a recap: Banks, fearing a loss of billions in fee revenue, pulled out the stops—launching ad campaigns and a Twitter campaign, writing letters to the Fed, threatening to sue, in one case actually suing, and donating to lawmakers who supported delaying the rules. They also warned that capping the fees would force banks to charge consumers for basic services to make up the difference. It's not clear how much they spent on their campaign against the regulations, but commercial banks and credit unions have spent more than $17 million overall on lobbying so far this year, according to the Center for Responsive Politics.

After their efforts, the rules were loosened and their implementation delayed until October. But banks have warned that they still plan to increase consumer fees. 

“Consumers will still see higher fees for basic banking services, and banks—particularly community banks—will still feel the revenue pressures that this rule will cause,” American Bankers Association president Frank Keating said in a statement. “We will continue to aggressively advocate for remedies that will mitigate any harm caused by this regulatory action.”

Retailers criticized the Fed’s new rule as a “serious disappointment” and an “about-face” by the Fed. They say the cap is set too high. 

As for consumers, it's not clear whether they'll come out ahead. David Evans, a former Visa adviser who runs a consulting firm catering to the financial industry, has said that consumers have no reason to be happy—they’ll lose their bank perks and have no guarantee that retailers will pass on any portion of their savings.

But Georgetown University law professor Adam Levitin takes a different view. He’s made the argument that competitive forces make retailers more likely to pass on savings to consumers and that in issuing the final rule, “the Fed bent over backwards to help the banks on this. How they go from 12 cents to 21 cents is never explained in the rulemaking.”

figures the Fed has modified this new rule to suit the banks, after all, the Fed isn’t here to serve the American People, but to serve big banks and Wall Street.  they’ve been quietly trying to “trip up” the establishment of the new Consumer Protection Agency since it was thought of and approved.  i would love to see details and headlines of the Fed audit - i would love to see the Fed abolished and some other pro-consumer, pro-American agency put in it’s place.  it would go a very long way in decreasing Corp, Bank, and Wall Street influence meddling in Washington…but, i’m sure some other “crooked” and “slimy” agency would replace it.  Thanks Pro Publica for the great reporting!!

If you are a careful consumer of financial products, i.e. shop around for the best deals on bank accounts and credit cards, you’ve noticed that the best rewards programs are drying up, and that more and more banks are charging for basic checking account services. This is most likely a result of changes from Dodd-Frank and the new CFPB. So you see your benefits reduced, in exchange for a few cents off of your purchases at stores - something that we may never be able to notice given the how often prices change up and down at most stores (a lot more going up recently).

Now, if you are not a consumer of financial products, i.e. you are un- or under- banked. You would not lose the benefits related to cheaper financial products, but you would get this theoretical, 10 or 20 cent savings. So this seems like a giveaway to the un-banked at the expense of those who keep their money in banks and use the financial system.

Rohit, how can it be “most likely” the result of Dodd-Frank as opposed to, say, the general financial meltdown that cost many of the banks billions?  Many of Dodd-Frank’s provisions have not been implemented yet to my knowledge, the CPFB has not really gone into action, and limits like the Vockler Rule have been watered down. 

True retailers passing on potential savings may be theoretical but on the other hand I know that the banks won’t be generous so why not give the grocery store a chance to be competitive?

Get Elizabeth Warren in there…Yes, i know the senate are staying out of recess to prevent a recess appointment but someone must get between big business and the people!


“Careful consumer of financial products”
first off I don’t consider the banking industry producing anything except more ways to get us to part with our money.
It doesn’t matter how careful you are, if they want more money they just simply charge more and there’s not a whole you can do. I have a credit card, started off @ 8.99% [FIXED] never missed a payment nor late now at 12.99% so much for the large print I signed.

My mortgage was sold to a bank from a servicer. I was told everything would remain the"same”. 2 months pass my escrow goes up. Taxes and insurance are the same but the new “holder” wants 2 months escrow cushion. They said it was short by $21.00 a month but they went up $37.00. No mention of giving me interest. Said I could pay the “shortage” in full but my mortgage still would be increased by $15.

17 million on lobby money to continue doing business as usual. Take the lobby money and apply it to the deficit. My bad, it is going to the deficit, the political leadership deficit.

Bankers apparently rule the world. Is there anyone, ANYONE on the side of the consumer/citizen.

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