Trade associations urge Fed to reject changes to debit card interchange fees

A group of banking industry groups are urging the Federal Reserve Board of Governors to reject merchant requests for further changes to Regulation II governing debit card interchange fees.

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Regulation II on Debit Card Interchange Fees and Routing establishes standards for assessing whether a debit card interchange fee received by a debit card issuer for an electronic debit transaction is reasonable and proportional to the costs incurred by the issuer. The rule also prohibits all issuers and networks from restricting the number of networks over which debit transactions may be processed to less than two unaffiliated networks, and from inhibiting a merchant’s ability to direct the routing of a debit transaction over any network that the issuer has enabled to process it.
The groups are calling on the Fed to collect and publish data on the costs of Reg II on regulated entities and the consumers. They are also requesting an opportunity to meet with the Board of Governors and rebut assertions made by merchants.

“As in the merchant groups’ litigation against the Federal Reserve on Regulation II, there is consistent cherry-picking of facts and omission of ‘inconvenient evidence’ that contradicts their advocacy efforts,” the groups wrote to the Fed Chair. “We urge the Board not to be misled. Contrary to merchant talking points, Regulation II has caused significant real-world economic harm to our members and their customers — and its recent expansion by the Board is compounding that harm. The Durbin Amendment’s ‘exemption’ of smaller financial institutions has proven to be largely illusory, as the Federal Reserve’s own data shows that regulatory thresholds in the interchange market do not insulate smaller issuers from harm.”

The letter was signed by the Consumer Bankers Association, American Bankers Association, American Association of Credit Union Leagues, Credit Union National Association, Electronic Payments Coalition, Independent Community Bankers of America, Mid-Size Banks Coalition of America, National Association of Federally-Insured Credit Unions, and National Bankers Association.

They also expressed disappointment that the Federal Reserve has not acknowledged that community financial institutions are facing rising costs and falling revenues because of existing Regulation II rules.

“Adding to this disappointment is the Board’s willingness to acquiesce to merchant requests regarding practices they consider to be ‘unfair,’” they wrote. “While we acknowledge and appreciate the important role that merchants play in the payments ecosystem, ensuring the soundness and sustainability of all stakeholders, including debit card issuers of all sizes — including community banks and credit unions, many of which are already facing rising debit costs and declining interchange revenues — is, in our view, a more important policy imperative for a financial regulator.”