Durbin Channels His Inner Captain Renault

The calendar turned October 1 last Saturday. The sun rose in the east. Taxes were paid. Birds began migrating southward. But, to those paying attention to Bank of America’s announcement of a $5 monthly charge for debit card usage, you would have thought Armageddon was upon us.

The Durbin interchange rules on debit cards began October 1. The Federal Reserve Board delayed the implementation (July 22 was the date spelled out in Dodd-Frank) because the government price setting isn’t an easy thing to do apparently. Prior to passage of the Durbin Amendment to Dodd-Frank, the Fed determined issuers were receiving an average of 44 cents on a debit card transaction. Given the narrow parameters the Durbin Amendment, the Fed proposed a cap of 12 cents in December. After receiving an avalanche of comment letters, the Fed took more than six months to issue a final rule revising the cap to 23 cents with a proposed one cent fraud adjustment.

Financial institutions were already facing profitability headwinds due to the CARD Act (2009) and revised overdraft protection regulations. The Durbin amendment caused many financial institutions to reevaluate the “free checking” model that has existed for many years. A theme is at work here. Government regulation equals costs to consumers.

Channeling his inner Captain Renault, Durbin voiced great surprise that Bank of America would actually seek to recover costs associated with government pricing setting for interchange.

President Obama joined the party by suggesting the Consumer Financial Protection Bureau take a look at the fees. Rep. Brad Miller (D-NC) introduced legislation (H.R. 3077) requiring financial institutions to honor a request by consumers to close their checking or savings account within 48 hours and prohibit any fees associated with the request.

Expect the Miller legislation to be the first of many salvos from Congress in reaction to Durbin Amendment re-pricing. And, if the President is informally calling upon the Consumer Financial Protection Bureau to investigate these new charges, one need not go very far on a limb to believe the CFPB will do just that. We are under one week of the Durbin debit interchange regime and the water is already very choppy. 

Durbin Channels His Inner Captain Renault

Durbin Pulls a “Kinsley”



Commentator Michael Kinsley



Illinois Sen. Dick Durbin

What is a “Kinsley?” Attributed to journalist and commentator Michael Kinsley, it occurs when a politician commits a gaffe by speaking the truth. Sen. Durbin addressed a Nashville business forum this week and pulled a Kinsley. According to several news reports, Durbin told the audience the purpose of his interchange amendment was to make retailers more profitable. He also was quoted as saying, “That’s what’s behind this.” Make retailers more profitable? The Home Depot Chief Financial Officer must have blushed when reading that comment. Didn’t Durbin repeatedly take to the Senate Floor the last two years saying the purpose behind the government setting interchange pricing was to give “consumers” relief?



The October 1 effective date for the cap on interchange rates on debit cards is quickly approaching. This blog will resume following all developments closely on market and political trends. This will include any more “Kinsleys” from Sen. Durbin.

Durbin Pulls a “Kinsley”

A Bridge Too Far

In the end, reaching 60 votes to delay the implementation of the Durbin Amendment debit card interchange rules that had passed overwhelmingly in 2010 was always a stretch.  In this political climate, getting a majority of Senators to agree on much of anything is a daunting task.

It is somewhat heartening to know that 54 members of the “world’s greatest deliberative body” saw fit to fix one of the biggest debacles created by the Dodd-Frank Wall Street Reform Act.  I can readily understand Democratic opposition to the Tester Amendment that sought to delay the rules.  They are often seduced by a populist “help the little guy” argument no matter how disingenuous; though 17 of them didn’t fall for it this time and they are to be commended. 

It is harder to understand the motivation of the 12 Republicans that voted with Durbin on this issue.  One positive here is that this number is down from the 17 Republicans who initially voted to intervene in this marketplace last July.  I suppose I can understand the votes from Senators in a state where a retail giant like Home Depot is headquartered.  After all they are among the biggest winners in this fight.  Contrary to Senator Durbin’s plaintive pleas for the “mom and pop” shops, it is the big box retailers who will enjoy the largesse of this Congressional giveaway, or should I say takeaway.  In fact, it was the CFO of Home Depot who in a recent call with shareholders said that Durbin implementation will mean $35M to their bottom line annually.  But wait, I thought that any savings was to be passed on to consumers.  Is it savings after the $35M?

Freshman Senator John Boozman (R, AK) was a profile in political courage by resisting pressure from a rather large retailer headquartered in Bentonville, AK and voting for the Tester Amendment.  After the vote he said that he couldn’t vote for something that allowed government pricing. 

Republicans purport to be the party of free markets and less government.  In this case, Senator Barbara Mikulski (D, MD), not usually known as a big free market advocate and 17 of her Democratic colleagues were just that.  And Senator Lindsey Graham (R, SC) and 11 of his Republican colleagues were not.  At least I know who to thank when my free checking account goes away.

Republicans can point to a number of achievements.  Unfortunately their latest achievement is defeating the Tester Amendment.

A Bridge Too Far

Tester Bends, Doesn't Break in Interchange Battle



Sen. Jon Tester: No retreat, no
surrender. Montana Democrat
plows ahead with plan to
delay implementation of Durbin
interchange rules.



The week began slowly for "Delay Durbin" proponents in the U.S. Senate where Majority Leader Harry Reid decided to debate oil company tax breaks, offshore drilling and judicial nominations. The small business innovation bill (S. 493), where the Tester Amendment to study and delay the rules on debit card interchange is pending, appears to be in legislative limbo (or purgatory if you wish). Two months remain before the Durbin Amendment is to take effect and the Federal Reserve Board has yet to publish a final rule.

Mid-week saw a significant momentum shift. The highlights are as follows:



Senate Majority Leader Reid.
If Tester can show support, he'll
give him a vote on delaying
Durbin.



• Sen. Durbin spent the last moments of the Senate session on Tuesday giving his interchange "stump" speech. He lashed out again at familiar opponents such as the Wall Street Journal and the American Bankers Association. Durbin revealed one news nugget by suggesting the Fed's final rule will be out the first week of June (Blogger's Note: Ben Bernanke is probably the only person who knows the exact date).
• 
  Majority Leader Harry Reid on Wednesday publicly backed Durbin against delaying the final rule, but he will give Tester a vote on his amendment provided Tester can demonstrate 60 votes in support.

Sen. Tester announced late Wednesday that he will revise his amendment to lower the study period from 24 months to 15 months. News reports speculated Tester's move was to garner a handful of remaining votes pushing him over 60 votes.

Tester is likely to file a revised amendment to another bill to accommodate the study period change and possibly other modifications. Many believe Tester will file the new amendment to the Patriot Act renewal bill which the Senate is likely to debate the week of May 23 (certain parts of the Patriot Act are set to expire May 28).

Please visit next week as this tug-of-war grows ever more intense.

Tester Bends, Doesn't Break in Interchange Battle

Groundhog Day and the Durbin Interchange Debate

 

Haven't we already seen this movie? Federal Reserve Chairman Ben Bernanke and FDIC Chairwoman Sheila Bair returned to the Senate Banking Committee yesterday to testify on implementing the Wall Street Reform and Consumer Protection Act (Dodd-Frank).

Sen. Jon Tester (D-MT) questioned Bernanke and Bair again on the workability of the small issuer exemption under the Durbin Interchange Amendment. Bernanke repeated his assertion from his last Banking Committee appearance in February that the exemption will be difficult to execute and lost interchange revenue may lead to failures of certain community banks and credit unions. Bair did not go quite as far as Bernanke by asserting lost interchange revenue probably will not cause any failures, but she said that Durbin will likely cause small bank revenues to decrease while fees for consumers will increase.

Bernanke's real news came when he told Tester the Fed considered (under its Reg E authority) to require two-tier pricing in the final Durbin Amendment rule. Bernanke also hinted the Fed is close to issuing the final rule (in so many words). We should expect rampant speculation on the exact timing in the coming days. Other speculation centers on whether the Fed, in absence of any intervening Congressional action, will delay the effective date (July 21) in the final rule. Legally, can they?

The Senate punted this week any legislative agenda beyond judicial nominations. Sen. Tester's "Delay Durbin" Amendment remains pending to the small business bill (S. 493). Senate leaders cannot agree on the terms bringing this bill to a close. News reports suggest Tester may opt to attach his amendment to other legislation expected to hit the Senate floor in the coming weeks. These bills are extending certain parts of the Patriot Act and an energy efficiency bill.

We all should be channeling our inner Bill Murray to bring this Groundhog Day to an end.

Groundhog Day and the Durbin Interchange Debate

Will the Tester Amendment Be Part of the Small Business Bill?

More than a month has passed since Federal Reserve Chairman Ben Bernanke wrote Congress about missing the April deadline to issue the final rule on debit card interchange and network exclusivity. "Delay Durbin" proponents and opponents have been locked in battle on Capitol Hill, in the news media and in the courts. At this writing, we do not have a winner.

Still up in the air is whether Montana
Democrat Jon Tester's "stop and
study" bill regarding the
Durbin Interchange Amendment will
be part of any small business bill
that makes it out of the Senate.

Congress returned to work after a two week recess. Sen. Jon Tester's (D-MT) amendment to "stop and study" the Durbin Amendment remains pending to S. 493, a small business innovation bill. The Senate has had S. 493 under consideration since mid-March in an off-and-on capacity. Sen. Majority Leader Harry Reid (D-NV) sought to end debate on S. 493, but the vote failed 52-44 (60 votes were required to end debate). Once the vote failed, the Senate tabled further consideration of S. 493 while both sides attempt to resolve several "contentious' amendments such as regulatory reform and budget cuts. The Tester amendment remains in limbo.


More House members signed on as cosponsors to H.R. 1081, the House version of Sen. Tester's efforts. The total is more than 90 as of this week. Two Republican members from South Carolina (Reps. Joe Wilson and Jeff Duncan) removed their names as cosponsors recently suggesting the tug of war between the financial services industry and retail community is alive and well.


Back to the Senate side, leaders will likely reach a deal on final amendments to the small business bill in the coming days or decide to shelve it all together. My sense is a deal will be struck, but the question remains whether a vote on the Tester Amendment is part of the deal. If it doesn't happen with the small business bill, Tester will look for another legislative vehicle as the clock ticks toward July 21.

Will the Tester Amendment Be Part of the Small Business Bill?

Bernake Press Conference - 2:15 April 27, 2011

Bernake Press Conference - 2:15 April 27, 2011

A Tester Vote Could Be a Week Away

Could a vote on delaying implementation of the Durbin Interchange Amendment be far off? According to The Las Vegas Review Journal, maybe not. 

Senate Majority Harry Reid continues to work with both Sen. Jon Tester, D-Montana, and Senate Whip Dick Durbin, D-Illinois, on the details of Tester's bill, which would delay implementation of Durbin's long-sought cap on debit card interchange, says the Review Journal.

The Senate will try to finish consideration of its small business bill (S. 493) the week of May 2. The article suggests a vote on the Tester amendment is likely.

On the House side, the Financial Services Committee released a tentative May hearing/mark up schedule. Rep. Shelley Capito's bill (H.R. 1081) is nowhere to be found. The House continues, it appears, to be content to let action happen on the Tester Amendment first.

DIA.org will report on whether Federal Reserve Chairman Ben Bernanke provides any information on the final rule's timing at his press conference--as well as the Senate's floor schedule for May 2.

A Tester Vote Could Be a Week Away

No News Is...No News

Hard news on debit card interchange was hard to come by this week as Congress finished its first week of recess and the Federal Reserve's April 21 deadline for issuing a final rule came and went like a passing stranger in a crowd.

April 21 was to be the critical day in the life (or death) of the Durbin Amendment.  "Delay Durbin" proponents, Sen. Durbin himself and the courts considering the TCF lawsuit all are awaiting a final rule before calculating next moves. We all know Chairman Bernanke told Congress weeks ago the Fed would not meet the Dodd-Frank April 21 deadline, but no one (including

Bernanke?) has any firm guess on when exactly the Fed will issue the final rule. Bernanke conducts his first ever "press conference" next week. Stay tuned here to see if he is asked about the final rule's timing and if he actually "makes news" here.

No News Is...No News

Measure Twice, Cut Once

As I mentioned in a previous blog, budget wrangling would consume Congressional energy and compress floor time for policy issues like the Durbin Interchange Amendment. This week certainly was no exception. And, with passage of legislation to fund the government through the end of the fiscal year, Congress is now taking its traditional April recess and won't return to Washington until May 2.

The Senate continued off and on consideration of a small business bill (S. 493) for the third consecutive week. The Tester Amendment to delay the Federal Reserve rule on debit card interchange remains pending to S. 493, but so do several other amendments. Senate leadership and the bill sponsors continue negotiations on the remaining amendments to be brought to a vote before final passage.

Yesterday, Sen. Tester (D-Montana) took advantage of some floor time to pitch his amendment once again. In a reasoned and deliberate speech to his colleagues, he defended his request to delay the implementation of Durbin so that lawmakers could get it right. He used the old carpenter metaphor of "measure twice, cut once." Speaking for rural America he defended the proposed delay so that interchange regulation will not adversely affect credit unions and community banks, which are an important part of the financial system for rural America. Take a look:



Sen. Durbin perhaps was too busy excoriating JPMChase CEO Jamie Diamond to jump to the floor and rebut Tester.

The House companion to the Tester effort (H.R. 1081) gained several more cosponsors this week (currently standing at 85). At this writing, the House appears likely to continue its position that the Senate act first.

Measure Twice, Cut Once

Tester and Frank Drive News of the Week

Frustration defined is watching the U.S. Senate trying to pass bill on the Floor. The Senate's attention this week was dedicated to the small business bill (S. 493) and government shutdown/budget talks. Sen. Jon Tester's amendment (#267) to delay implementation of the interchange debit card rules remains pending to the small business bill, but no agreement has been reached to call it up for a vote at this writing.

Sen. Tester took both to the Senate Floor and the media airwaves to tout his effort to delay and study the debit card rules. On CNBC's Squawkbox, Tester expressed confidence that he will have 60 votes in support of his amendment when called on the Floor. Sen. Richard Durbin also spoke on the Floor and with CNBC against any effort to delay implementation of his amendment.

On the House side, Rep. Barney Frank, former chair of the House Financial Services Committee, and one of the namesakes of the sweeping Dodd-Frank Wall Street Reform Act, made news by supporting legislation that would delay implementation of the Durbin Amendment. The House bill (H.R. 1081) gained more bipartisan co-sponsors this week (current total is 71). Frank's support for delay makes it a near certainty the House can pass a bill with a strong, bipartisan majority.

This takes brings us back to the Senate.. The Senate Floor schedule for next week has not been announced and it is unclear how a possible government shut down will affect Floor activity. We do know both the House and Senate are scheduled for a two week recess (Apr. 18-29). Again, a government shutdown could call into question that schedule as well.

The legislative process, above all else, requires patience sprinkled with some humor.

Tester and Frank Drive News of the Week

Bernanke Cannot Make Durbin Deadline -- Tester Swings into Action

Last week's blog suggested little or no legislative action to delay implementation of the Durbin Amendment interchange rules until the Federal Reserve issues the final rules (on or by April 21).

Fed Chairman Ben Bernanke threw a major monkey wrench into the entire process last week by telling Congress that the Fed would miss the April 21 deadline and offered no guidance as to exactly when the final rules would be published. In his letter to Congress, Bernanke wrote that the Fed was however committed to the July 21 implementation date. He cited the high volume of comment letters (more than 11,000) and the complexity of the issues as the two main reasons the April 21 deadline could not be met.

The same day Bernanke sent Congress the letter, Sen. Jon Tester (D-MT) filed an amendment to a small business bill (S. 493) pending on the Senate Floor. The amendment is the exact text of S. 575, Sen. Tester's legislation to delay and study the Durbin Amendment. Sens. Durbin and Tester spoke on the Senate Floor last Thursday in support of their competing efforts on interchange.

Sen. Tester told CNBC that he's confident his amendment has the 60 votes necessary to overcome a threatened filibuster from Sen. Durbin. The Senate adjourned last week without completing action on S. 493 and will resume its consideration this week. If Sen. Tester cannot get a vote on his amendment to the small business bill, he will look for other legislation on which to attach it, perhaps a continuing resolution.  EFTA has written a letter (posted under Important Links- “EFTA Tells Congress It Supports a Delay in Durbin Implementation”) to Congress expressing its support for the Tester Bill.

Financial service providers were already facing a daunting 90 day timeline from the issuance of the final rules on April 21 to the July 21 implementation date. Once Chairman Bernanke announced the Fed was compressing that timeline, proponents to delay and study the Durbin Amendment gained an advantage. We will soon see if this translates into a positive vote in the Senate.

EFTA has also written a letter to Chairman Bernanke expressing our strong believe that the industry needs at least 90 and more likely 180 days from the publication of final rules in order to make and test the changes necessitated by those rules.

Bernanke Cannot Make Durbin Deadline -- Tester Swings into Action

It’s not the Little Big Horn but It Could Be Big, Nevertheless

Sioux Fall, South Dakota is about a thousand miles from the U.S. Capitol, but a battle is shaping up there today which could affect implementation of the Durbin Interchange Amendment and the Federal Reserve’s proposed rules governing debit card interchange fees.

Today the government and TCF National Bank are all lawyered up in Judge Lawrence Piersol’s courtroom debating whether Congress has the right to impose price caps on banks that issue debit cards. TCF says the law is unconstitutional. The government says TCF’s claim has no merit.

At stake is the more than $16 billion that banks collect each year, according to the Fed, in what merchants call “swipe fees.”  Swipe fees is term that could have only been coined for the retail industry by a modern day Don Draper. It is a term that denotes a brief, fleeting, ephemeral action (the swipe), as delicate as gossamer—but which costs merchants 16 billion large every year (the fees). Sixteen billion is how deeply in debt the state of California was in 2008. Sixteen billion is what Southwestern Bell paid for AT&T in 2005. It’s what Microsoft earned in 2010.

Swipe fees understates the value of card acceptance and overstates the burden to merchants, skewing the argument and manipulating public opinion. As such it is positively brilliant.

Meanwhile back at the Capitol, Congress is considering delaying the implementation of the Durbin Amendment. While the Fed lawyers are busy in Judge Piersol’s courtroom, Fed analysts continue to comb through 11,000 comment letters received in response to the agency’s proposed Durbin rules.

Smart money says there’ll be a delay in implementing the Durbin rules. TCF’s Battle of Sioux Falls? A toss-up. But I wouldn’t put $16 billion on the outcome of either battle.

It’s not the Little Big Horn but It Could Be Big, Nevertheless

Fed May Hold Fate on “Delay Durbin” Bills

Congress is back in business (session, i.e.) next week, but the committee schedules are a bit slow getting published. At this writing, the House Financial Services Subcommittee on Oversight and Investigations will conduct a hearing on March 30 to explore the budget implications of Dodd-Frank. I would expect the interchange issue to be raised in some capacity.

The Senate Banking Committee has scheduled a hearing on March 29 relating to housing, but another hearing for next week could be announced today or Monday.

Sen. Jon Tester’s legislation to delay the Durbin Amendment (S. 575) picked up two co-sponsors recently. Sen. Max Baucus (D-MT), chair of the Finance Committee, and Sen. Daniel Akaka (D-HI), member of the Banking Committee, added their names in support of S. 575. More than 10 House members agreed this week to co-sponsor Rep. Shelley Moore Capito’s (R-WV) “delay Durbin” bill (H.R. 1081). Total House co-sponsors currently stand at 42.

The Federal Reserve may be unintended decider on the legislative momentum for the Tester and Capito bills. The Fed’s final rule on implementing the Durbin Amendment is due April 22. If the final rule fails to address concerns with the small issuer exemption and resolve how fraud prevention may impact interchange rates, we should expect Tester/Capito proponents to swing into action.

Fed Chairman Ben Bernanke said this week he wants to address legitimate concerns with the small issuer exemption in the final rule. Since the Fed defended its proposed rule in February by telling Congress that it was merely following language in Dodd-Frank (Section 1075), it would appear inconsistent that the Fed get “creative” in the final rule. We will find out in about a month.

Meantime, Tester/Capito proponents may be in a “wait and see” approach until the final rule gets published.

Fed May Hold Fate on “Delay Durbin” Bills

Pen Meet Paper: Interchange Delay Bills Finally Introduced

Ending weeks of speculation, Sen. Jon Tester (D-MT) and Rep. Shelley Moore Capito (R-WV) introduced legislation (S. 575/H.R. 1081) to halt the implementation of the Durbin interchange amendment as proposed by the Federal Reserve Board. S. 575 was referred to the Senate Banking Committee and H.R. 1081 was referred to the House Financial Services Committee. At this writing, 13 Senators have co-sponsored the Tester bill and 43 Representatives have co-sponsored the Capito bill.

S. 575/H.R. 1081 propose to do the following:

-- Require more banking agencies (FDIC, OCC and NCUA) to join the Federal Reserve in studying the Durbin Amendment effects

-- Halt implementation of the Fed's final rule (schedule to be July 21) while the study would take place (the Senate bill proposed a two year study while the House bill calls for a one year study)

-- Make "null and void" any final Fed rule implementing the Durbin Amendment if a sufficient number of regulators deem it did not adequately assess the costs associated with debit card transactions, the effects on consumers and the smaller issuer exemption

In the normal legislative process, the Senate Banking Committee and House Financial Services Committee would hold additional hearings and then schedule a mark up session (amend the bills and vote them to full Chamber). No one can be sure at this time how "normal" this legislative process will be. Speculation already exists that Sen. Tester may bypass the Banking Committee and offer his bill as an amendment to a budget bill.

The one thing we do know is that S.575/H.R. 1081 are not halting the Federal Reserve's statutory deadline (April 22) to issue its final rule implementing the Durbin Amendment. Congress is in recess the week of March 21, but we hope to have the Committee schedules for the week of March 28 posted here by next Friday.

Pen Meet Paper: Interchange Delay Bills Finally Introduced

Latest Legal Maneuver Surrounding the Durbin Interchange Amendment

The stage appears set for the April 4, 2011 hearing in Sioux Falls, South Dakota on a request by TCF National Bank for a preliminary injunction against the Justice Department. TCF is challenging the constitutionality of the Durbin Interchange Amendment of the Dodd-Frank Act.

In a press release that crossed the wires yesterday TCF states that its review of Justice's recent motion to dismiss shows that the Department is not contesting the bank's allegation that Durbin amounts to legalized price fixing. Instead, Justice is claiming that the constitutional protection against what the bank calls "arbitrary price controls" applies only to utilities. Justice is making the case, says TCF, that other industries, in this case, banking, do not enjoy the same constitutional protections.

So far Minnesota is the state furthest out in front of the Durbin Interchange Amendment issue. In addition to the Minnesota-based TCF, The Minnesota Free Market Institute has warned that the real uproar against the law will occur when consumers realize the negative impact that Durbin may have. Previous posts here have detailed actions that other large banks are taking to offset anticipated loss of revenue due to Durbin.

The April 4 hearing on the TCF motion will come several weeks ahead of the Federal Reserve's anticipated release of the final Durbin implementation rules.

Latest Legal Maneuver Surrounding the Durbin Interchange Amendment

House to Senate: You Go First

Rep. Spencer Bachus, chair of the House Financial Services Committee, made the most significant news this week on the "Delay Durbin" front. He told a group of international bankers that the House would wait for the Senate to act on legislation delaying the Federal Reserve's interchange proposed rule on debit cards. Chairman Bachus took this position despite his Committee having two hearings in the last month on this issue and hearing broad, bipartisan support for a delay and study approach.

So, what is happening on the Senate side? News reports this week suggest a bill introduction to delay Durbin is eminent. These reports also identified Sens. Jon Tester (D-MT), Tom Carper (D-DE) and Bob Corker (R-TN) as the lead sponsors. The good news here is all three Senators are members of the Banking Committee which would first consider any legislation affecting the Durbin Amendment from Dodd-Frank. Expect a bill to be dropped the week of March 14.

Two interesting organizations jumped into the Durbin discussion this week as well. The Officer of the Comptroller of the Currency (OCC) wrote the Federal Reserve to voice strong concerns with the proposed rule's inflexibility for companies to recover identifiable costs associated with running a debit card program. The National Association for the Advancement of Colored People (NAACP) wrote House Speaker John Boehner (R-OH) this week urging the House to move swiftly on legislation to delay the implementation of the Durbin Amendment because study has not taken place on the potential impact to the unbanked and "risker" consumers.

Please visit my blog next week as I hope to finally report on actual legislation and its contents.

House to Senate: You Go First

Fair Banking

It looks like retail lobbyists have launched their counterattack on the financial industry, following its criticism of the Durbin interchange amendment. It is difficult to determine whether the retailers underestimated the fury of the financial industry, or whether they even expected it. But a representative of the convenience store lobby recently called the financial industry’s concern over Durbin’s effect on small institutions “a scare tactic.”

 Ditto a speaker for the National Retail Federation who said "It looks like the big banks that have been ripping off consumers with hidden swipe fees are going to have to find a new talking point now that their small bank scare tactic is moot." One consultant went  so far as to allege that the major financial industry players were raising the issue of small banks and credit unions as a ploy to keep them lobbying against Durbin.

But if the retailers devised this "scare tactic" talking point to call the bluff of the financial industry, they may have overplayed their hand. Just last week. Regions Bank, the Southeast banking powerhouse, announced that it would no longer accept customers into its Relationship Rewards Program. The reason: the loss of debit card interchange revenue expected from implementation of the Federal Reserve’s rule capping those fees.

Also last week PNC Bank announced that it was ending its debit card rewards program, another victim of Durbin and the looming fee caps. In addition, the Pittsburgh-based bank announced that it was ending its policy of free out-of-network ATM transactions for customers, although free checking will remain. PNC, with nearly 2,500 branches, is retooling its consumer fee structure. Why? Again, the impending impact of the Fed’s Durbin fee caps.

Regions and PNC are just two institutions that are engaging in a practice that has been termed “fair banking.” Translation: The consumer once again gets stuck with the tab for an ill-advised piece of legislation. While that may be scary, it’s not a scare tactic. It’s what happens when any special interest group convinces lawmakers that something from which its members directly benefit will be in the best interest of consumers. It’s a zero-sum game. Under Durbin revenue currently accrued by financial institutions for a service they provide will accrue to Big Box retailers and the crowd that charges $4.99 for a large slushy.

So with its fair banking strategy, the financial industry is taking the wise step to inoculate itself against the effect of the Fed’s rules by re-aligning consumer banking services and consumer fees, and figuring out what will make the most sense for everyone in a post-Durbin world.

Fair Banking

Does the CUNA Meeting Provide Insights on the Future of the Durbin Interchange Amendment?

The big news this week on delaying the Federal Reserve's proposed rule on debit card interchange happened in Washington, but not at the usual venue.

The House Financial Institutions and Consumer Credit Subcommittee essentially held its second hearing on the Fed's proposed rule on Wednesday. The hearing centered on the effects of the Dodd-Frank Act on small financial institutions and businesses. The first panel comprised of small financial institutions (chiefly credit unions and community banks) voiced concerns with the potential, damaging effects of the Durbin interchange amendment. [They additionally voiced concerns with the Consumer Financial Protection Bureau even though Dodd-Frank exempts institutions with less than $10 billion in assets from the CFPB's authority.]

Sen. Jon Tester says Senate
 may revisit Durbin

The real news was generated off Capitol Hill at the Credit Union National Association's (CUNA) annual government affairs meeting. House Speaker John Boehner, CFPB overseer Elizabeth Warren and House Financial Service Committee Chairman Spencer Bachus highlighted a "who's who" roster of important Washington decision-makers.

Two Senate Banking Committee members (Jon Tester of Montana and Mike Crapo of Idaho) assured the CUNA audience the Senate would revisit the Durbin amendment is some capacity given the questions raised by the small issuer exemption. [Please note Sen. Crapo voted for the Durbin amendment last year while Sen. Tester did not.] Speculation arose that Sen. Tester would soon introduce a bill. And, on the House side, Rep. Shelley Moore Capito, chair of the FI Subcommittee, would be the lead sponsor.

Despite this positive news from the CUNA conference, we unfortunately have yet to have a bill formally introduced in the House or Senate. The good news is Congress is building a hearing record on the debit card interchange issue so swift action could occur once a bill is dropped in the hopper. The key question is whether any proposed bill will simply delay the effective date or will Congress be compelled to "fix" the Durbin amendment in some way. Given the nature of the nature of the legislative process, the latter may be a real possibility.

As always, please stay tuned.

Does the CUNA Meeting Provide Insights on the Future of the Durbin Interchange Amendment?

Upcoming Budget Battle Versus Durbin Interchange Amendment

March typically is an important month on Capitol Hill. Varying constituent groups from all over the country fly in to Washington for meetings with senators, representatives and their staff. Committee agendas are prioritized. Bill introductions increase dramatically. Work on the next fiscal year’s budget begins in earnest.

The prospects of a government shutdown loom over this current Congress. The question is how much energy and time will Members have to tackle important, non-budgetary issues such as the Durbin interchange amendment. We should have a clearer answer in the coming weeks.

The House Financial Institutions and Consumer Credit Subcommittee will conduct a hearing Wednesday on the effects of the Dodd-Frank Act on small financial institutions and small business. As you may recall, this Subcommittee dedicated an entire hearing on the Federal Reserve’s proposed rule on the Durbin interchange amendment on February 17. Hearing details are scant at this writing, but one must assume more time will be devoted to the interchange issue.

On the Senate side, Sens. Kay Hagan (NC) and Michael Bennet (CO) wrote Federal Reserve Chairman Ben Bernanke to urge him “…to create a meaningful and workable small issuer exemption from the interchange requirements.” They cited Bernanke’s own testimony before the Senate Banking Committee recently that the small issuer exemption may not be workable in the marketplace. A consensus is emerging among all Durbin interchange amendment players (with the exception of the merchants) that, at a minimum, the small issuer exemption needs fixing.

The good news is momentum has not waned on Capitol Hill to understand the impact of the Fed’s proposed rule on interchange. Let us hope to avoid the bad news of a possible government shutdown short-circuiting this important policy work.

Upcoming Budget Battle Versus Durbin Interchange Amendment

Interchange, Durbin and Small Institutions

The Durbin Interchange Amendment exempts thousands of smaller banks and credit unions from the interchange fee caps proposed by the Federal Reserve on December 16. Put this in the unintended consequence file. While seemingly well intentioned, in effect the law would create an unsustainable two-tiered fee approach that would end up further disadvantaging these institutions, rather than helping them.

Last week's House hearing showed that that if there is one thing large and small institutions have in common it's dissatisfaction with this provision. It's hard to fathom why the drafters of Durbin couldn't foresee that a system where the larger banks, which contribute the volume that makes our electronic payments system work and which would be subject to Durbin's administrative pricing, would continue supporting a system where their competitors were given a ten stroke handicap.

It's also worth noting that the legislation seems to turn standard merchant agreements on their heads by opening the door for retailers to offer lower pricing to customers whose large bank-issued cards are subject to the government's administrative pricing. Or higher pricing to customers whose cards were issued by their credit union. Conceivably, the largest merchants who worked the hardest for Durbin and stand to profit the most by it could encourage customers to avoid using their credit union or community bank-issued cards altogether because they're more expensive for the retailer.

Will we also see retailers turn away those cards issued by smaller institutions because they carry higher interchange fees? It is possible that some retailers would do this. We all know the dirty little secret that some retailers for years steered customers away from signature debit to another form of tender. That other retailers set a floor limit on small, low margin purchases. That some retailers won't accept electronic payment on sale items. That's with the strict card acceptance policies in their merchant agreements. What will happen if the proposed Fed rules are finalized in their present form? Who knows?

One thing seems certain. With scores of credit unions and community banks in virtually every Congressional district, Congress will continue the dialog begun at last week's House hearing on this subject. The Fed is teeing up Congress' ball on this issue. But it might be time to take a mulligan and tee it up again.

Interchange, Durbin and Small Institutions

Possible Next Steps on Durbin Interchange Amendment

 

The dust is settling after yesterday’s hearings in both the House and Senate on the Federal Reserve Board’s (FRB) proposed rule to curb debit card interchange pricing and network routing.

A bipartisan consensus emerged that can be summarized as follows:

• Nine months is not sufficient time for the FRB to propose and finalize a rule this complex and with this many stakeholders
• Objective observers, including FRB Chairman Ben Bernanke, and FRB Governor Sarah Raskin can provide no assurance that merchants will pass along interchange savings to consumers
• The $10 billion or less exemption from interchange limits for small cap issuers may be unworkable and may not only harm consumer payment choices, but small financial institutions as well

A majority of members from both sides of the aisle, who serve on the House Financial Institutions and Consumer Credit Subcommittee, expressed a “stop and study” concept during Thursday’s, at times, pointed questioning of FRB Governor Sarah Raskin. In each case, her reply was that any decision to delay implementation of the Durbin Amendment lies with the Congress and not the Fed.

Raskin is certainly correct here. Comment letters on the FRB’s proposed rule are due February 22. Under Dodd-Frank, the FRB must publish the final rule by April 22 and the implementation date is July 21. This timeline would give Congress about five months to pass an implementation delay bill and send it to President Obama. In the legislative process, five months is not a great amount of time, especially given the Senate’s deliberative nature and likely strong opposition to such action from Sen. Durbin.

Moreover, will Congress consider an implementation delay bill as a stand-alone piece of legislation or part of a larger Dodd-Frank “corrections” package?  This question will likely be answered in the coming weeks. Given yesterday’s events, it is safe to assume momentum is on the side of those wanting to “stop and study” the effects of the Durbin amendment but significant hurdles to such action remain.

Possible Next Steps on Durbin Interchange Amendment

Sen. Durbin Fires Back on Debit Fees Interchange Debate

Never let it be said that Illinois politicians don't know a good fight when they see one. Sen. Dick Durbin (D-IL), the sponsor of the so-called Durbin Interchange Amendment contained in the Dodd Frank Act, came out swinging against the banking industry recently in his best UFC impersonation.

In a February 14 bare-knuckles letter to the American Bankers Association, The Senate minority whip, called the banking industry's public comments about the Durbin Interchange Amendment "misleading" and "distorting," and accused the industry of "using scare tactics" when opposing his long sought bill.

Sen.Dick Durbin (D-IL)

Sen. Durbin also accused bankers of making "misleading claims" about debit card fraud costs, presumably to justify their case against capping interchange.

In fact, Sen. Durbin countered the industry's accusation that the amendment amounts to price controls by accusing Visa and MasterCard of "price fixing," presumably without the imprimatur of Congress that the price caps contained in Durbin have.

He also defended himself against the jab that Durbin will harm consumers. Consumer groups widely support the bill, according to Sen. Durbin.

I appreciate the fact that Sen. Durbin took the time to write. And I hope that our friends over at the ABA take the time to read his lengthy letter.

But when you cut through all of it, you have to admit that telling a company it can only charge no more than 12 cents for a service does kind of sound like you're putting  lid on the price of that service, no matter how much you justify it.

And when publicly traded companies include in their 10-Q reports to the SEC that they're concerned Durbin will cost millions of dollars in revenue and that it may have a material effect on operations down the road, I don't think you can call that scare tactics. I don't think the SEC scares easily. And I don't think public companies scribble anything into a public filing that comes into their heads, like it was the essay portion of the SATs.

Sen. Durbin can rightly claim that consumer groups have lined up behind his bill. But even he would have to admit that these groups rarely if ever--okay, never--advocate a pro-banking or pro-industry position. So I think you have to discount that support.

The fact is that there is still a good deal of opposition to this bill and it grows every day. No amount of purple prose splashed up on Capitol Hill will change that right now.

Let's hope we get a calmer, more rational look at the facts over on the House side in the February 17 hearing.

Sen. Durbin Fires Back on Debit Fees Interchange Debate

Another Front Opens in the Battle Over Interchange Fees

On February 9, 2011 the U.S. House Committee on Oversight and Government Reform chaired by Darrell Issa (R,CA) issued a preliminary staff report titled “Assessing Regulatory Impediments to Job Creation.”



Darrell Issa (R-CA) chairs the House
Committee on Oversight and
Government Reform



Included in this cross industry examination of rules that may negatively impact job creation is an analysis of the hundreds of rules necessary to implement the Dodd-Frank Wall Street Reform Act and its Durbin interchange amendment.  According to the study, the top two most problematic rules affecting the financial services sector were the Federal Reserve Board’s (FRB) debit card interchange fees and routing (Durbin iinterchante amendment) and the creation of the Consumer Financial Protection Bureau (CFPB).  Look for Chairman Issa to tie this to President Obama’s January 18, 2011 Executive Order titled “Improving Regulation and Regulatory Review” designed to remove regulatory barriers that stifle economic growth. 

You can expect Chairman Issa to hold hearings on the findings of this preliminary report to “ensure that the processes used to implement these rules are transparent, that the agencies have provided adequate opportunity for stake holder participation, and that the agencies have taken all reasonable steps to minimize the cost of compliance for America’s job creators.”

The above criteria could add to the Durbin Interchange amendment controversy, since the House held no hearings on the Amendment. 

Any such hearing will be unrelated to the upcoming February 17^th Hearing “Understanding the Federal Reserve’s Proposed Rule on Interchange Fees: Implications and Consequences of the Durbin Amendment.”

Another Front Opens in the Battle Over Interchange Fees