Update on Debit Card Interchange Fees

by John B.C. Porter, Esq.

On December 16, 2010, the Federal Reserve Board (“Board”) released its proposed rule to implement the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted on July 21, 2010.  The Durbin Amendment amends the Electronic Fund Transfer Act by adding a new section 920 regarding interchange transaction fees and rules for payment card transactions.  Comments on the proposed rule were due by February 22, 2011, and the rule goes into effect July 21, 2011.  The Board was supposed to release its final rule on April 21, 2011, but that date has passed and a final rule has not materialized.  The proposed rule capped debit card interchange fees at $0.12 per transaction for institutions with assets exceeding $10B.

There is speculation that the Board is playing a waiting game with Congress, as two bills to delay implementation of the Durbin Amendment (one for two years and the other for one year) have been sponsored in Congress, S. 575 and H.R. 1081 respectively. 

Debbie Matz, Chairman of the National Credit Union Administration (“NCUA”), wrote a letter to Ben S. Bernanke, Chairman of the Board, dated April 29, 2011, in which she furthers the comments of the NCUA with respect to the Board’s proposed rule on interchange fees.  In her letter, Ms. Matz outlined the results of data collected from credit unions of various asset sizes relative to the direct costs of processing debit card transactions.  This data does not include indirect costs such as labor, facilities, equipment and other overhead costs related to operating a debit card program.  Based on this data, Ms. Matz concludes that the cost per debit card transaction for institutions with assets of less than $100M exceeds the $0.12 cap within the proposed rule.  In conclusion, Ms. Matz urged the Board to modify the proposed rule on interchange fees to provide meaningful exemptions for smaller card issuers related to network exclusivity and merchant routing.

Interchange Cost Chart

Senator Richard Durbin continues to defend his amendment, despite unprecedented opposition from financial institutions from multi-billion dollar banks down to the smallest credit unions, and penned an open letter to JPMorgan Chase CEO Jamie Dimon in which he wrote:  “[T]here is no need for you to threaten your customers with higher fees when you and your bank are already making money hand-over-fist.  And there is no need to make such threats in response to reform that simply tries to spare consumers from bearing the cost of interchange fees that are anticompetitive and unreasonably high.”  This was partly in response to Dimon’s letter to shareholders in which he stated that the proposed fee caps are akin to “price fixing” and “downright idiotic.”  It is not entirely clear who will benefit from the interchange cap, consumers or merchants, but it is abundantly clear that the big loser in all of this will be credit unions.  With the effective date quickly approaching and uncertainty as to what the fee cap will be or when it will be implemented, this promises to make an interesting, if not rocky, summer for us all.  Stay tuned….

John B. Porter is the managing attorney of the Credit Union Group in the Columbus office. He can be reached at 614.857.4488 or jporter@weltman.com.


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