WASHINGTON (2/18/11)--Federal Reserve Chairman Ben Bernanke on Thursday said that a planned interchange fee regulation exemption for credit unions and small institutions with under $10 billion in assets may not be effective in the marketplace, and admitted that there may be no way to ensure that small issuers are exempt from new interchange fee rules. The Fed chairman spoke during a Senate Banking Committee hearing on the progress of Dodd-Frank Wall Street Reform Act implementation. Bernanke in his testimony added that merchants could reject more expensive cards that would be offered by credit unions and other small financial institutions, and that debit card issuers may be forced to pass on the costs of debit card systems to their members and customers. Bernanke could not ensure that merchants would pass on their interchange fee savings to their consumers. The Credit Union National Association aired similar concerns in recent meetings with Fed representatives and legislators. Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair, who also testified during the hearing, shared many of Bernanke’s views, and speculated that the interchange changes could harm small financial institutions far more than they would help merchants. Bair added that credit union members and community bank customers could replace their current cards with less secure prepaid cards if smaller issuers are forced out of the debit card business. Bair also called for the Fed’s interchange rulemaking process to be delayed. (See related story: House hearing hints of interchange rule delay) Acting Comptroller of the Currency John Walsh said his group is also examining the Federal Reserve’s interchange provisions. Committee Chairman Sen. Tim Johnson (D-S.D.) and Sen. Jon Tester (D-Mont.) also raised concerns on interchange’s impact on credit unions and other small institutions, and Sen. Michael Bennet (D-Colo.) cited practical concerns with the proposed $10 billion interchange exemption. Other committee members offered their own takes on the interchange proposal and financial regulation in general during the hearing:
* Sen. Bob Corker (R-Tenn.) said he did not see how small institutions could not be impacted by the interchange changes, and questioned the fairness of price controls; * Sen. Mike Johanns (R-Neb.) called the Fed’s interchange proposal “draconian."
Sen. Jerry Moran (R-Kan.) said that many financial institutions in his district have complained that they are overburdened by financial regulations, and ranking committee member Sen. Richard Shelby (R-Ala.) said that overall, the amount of work required to implement the Dodd-Frank rules is “staggering.” For video of the Senate hearing, use the resource link.