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?