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House hearing hints of interchange rule delay
WASHINGTON (2/18/11)—Several legislators called for a delay of implementation of the Federal Reserve’s interchange fee proposal during a Thursday House financial institutions and consumer credit subcommittee hearing. Also prompting legislator concern about the impact on small issuers were comments from a Fed governor and earlier remarks by the Fed’s chairman, as well as testimony from the Credit Union National Association’s (CUNA) witness.
Click to view larger image Allied CU of Stockton, Calif., President/CEO Frank Michael urges lawmakers to stop, study and start over with the interchange rulemaking process. Several lawmakers also promoted delaying interchange regulation implementation during the House hearing. (CUNA Photo)
Fed Governor Sarah Bloom Raskin in testimony delivered early in the day said that the Fed would delay its rulemaking process if directed to do so by Congress. Raskin also noted that portions of the Dodd-Frank Act that instruct the Fed to ensure that interchange fees are “reasonable and proportional” to the costs of maintaining a debit card system were difficult for the Fed to interpret. The hearing also featured the testimony of Allied CU of Stockton, Calif., President/CEO Frank Michael. Michael, appearing on behalf of both his credit union and CUNA, reiterated CUNA’s urging for Congress to stop the implementation of the interchange standards and study the potential impact that the changes would have on credit unions and consumers. Congress could then restart the process of writing these potential regulations, Michael said. The Fed's interchange provisions could cap debit card interchange fees that are paid by merchants to card issuers at as little as seven cents per transaction. Issuers with under $10 billion in assets would be exempt from the interchange changes. Lawmakers questioned whether the Fed had been given the time needed to fully consider the impact that these interchange changes could have on financial institutions, merchants, and consumers, and Michael in his testimony noted a recent CUNA survey that found that 91% of CUNA’s member credit unions would be forced to change their current practices if the interchange proposal became law. These changes could mean increasing members’ existing debit card fees or introducing new fees and lowering deposit rates, he said. Michael added that the interchange regulations could harm low-income consumers by restricting their access to free checking accounts. He told committee members that his credit union would lose money on every debit card transaction made by one of its members if the Fed’s interchange proposal stands. “The only real question is how much” his credit union would lose, he added. Michael also questioned whether the Fed proposal would be able to enforce its proposed exemption for credit unions and other small issuers with under $10 billion in assets. Raskin during questioning said that the Fed’s plan to shield small issuers could be “eroded by market forces.” Fed Chairman Ben Bernanke also admitted this possibility in separate Senate testimony delivered on Thursday. (See related story: Senate Banking scrutiny of interchange questions exemption) CUNA President/CEO Bill Cheney said that CUNA was encouraged by the tenor of the hearing, and added that the combined comments of key legislators, regulators and our witness Frank Michael will increase pressure on Congress and the Fed to put on the brakes and rethink their approach. “That certainly will be the message we’ll be reinforcing when 4,000 of our folks are in town for the Governmental Affairs Conference later this month,” he added. The Fed proposal will remain open for public comment until Feb. 22, and, if approved, could come into effect in July.
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