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

Financial Services Committee to Hear Testimony on Debit Card Fees Feb. 17

Rep. Spencer Bachus (R-AL), new chair of the House Financial Services Committee, has announced several upcoming hearings for February. He has scheduled a hearing on the Federal Reserve's proposed rule for debit card interchange on Thursday, February 17. At this writing, specific panelists have not been named, but many expect representatives from the Federal Reserve to appear in order to explain the proposed rule.

Rep. Shelley Caputo will chair hearing

The Federal Reserve issued its draft rules on December 16, 2010. The major headline was the proposed cap of 12 cents per transaction for debit card interchange. This cap represents a near 80 percent reduction in current debit card interchange rates. Comments to the proposed rule to Federal Reserve are due February 22. By law, the Federal Reserve must finalize the rule by April 22.

Small issuers universally decried the proposed cap even though the law exempts any financial institution lower than 10 billion in assets from the cap. These issuers are concerned merchants will steer consumers to debit cards with the lowest interchange rate.

After the December 16 release of the proposed rule, news reports began to appear detailing how large and small financial institutions plan to address this significant loss of interchange revenue. The Wall Street Journal ran an article on January 5 titled, "At Banks, New Fees Replacing Old Levies." Many other articles detailed how free checking accounts may soon go away for many consumers.

No doubt many in Congress are the hearing the chorus that having the government set debit card interchange may not benefit consumers in the end. The February 17 hearing in the House Financial Services Committee should be the first step in building that record.

Financial Services Committee to Hear Testimony on Debit Card Fees Feb. 17