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ICBA Calls on Fed to Withdraw Harmful Proposed Debit Card Rule

Must Examine Impact on Main Street

Washington, D.C. (February 22, 2011)-The Independent Community Bankers of America (ICBA), the nation's voice for community banks, told the Federal Reserve today in a comment letter that the agency must withdraw its proposed rule on debit card interchange fees and routing and examine the impact it will have on Main Street consumers and small businesses.

"The Fed's proposed rule on debit card interchange fees will lead to higher costs and reduced services for America's consumers," said Camden R. Fine, ICBA president and CEO.  "Now is the time for the Fed to step back, study and reevaluate the horrendous effects that this proposed rule will have on Main Street."

ICBA vigorously opposed the Durbin interchange amendment during the consideration of the Dodd-Frank Wall Street Reform and Consumer Protection Act. A so-called "carve-out" for small issuers included in the law simply won't work.  Over time, not only will small issuers be drawn into the price controls called for in the rule, they will be disadvantaged relative to large issuers. The Federal Reserve's proposed rule, if implemented, will further industry consolidation and lead to higher fees and fewer choices for consumers. 

Community banks offer debit cards as a valuable service to their customers.  However, a recent survey of ICBA members found that 93 percent will need to charge their customers for services that are currently offered for free if the new law is implemented.  These new fees and the proposed rule will allow merchants to shift their costs of debit card acceptance to consumers and small businesses.  

In the comment letter, ICBA recommended that the Fed:

  • Examine the impact of the rule on consumers, small businesses, community banks and the "underbanked," as well as the likely adverse effect of the rule on competition and innovation.
  • Gather data about the costs incurred by banks of all sizes and establish standards that make it feasible for them to collect fees that are reasonable.
  • Take realistic steps to shelter community banks from the price cuts, including appropriate incentives (or requirements) for networks, acquirers and merchants to permit community banks to charge interchange fees adequate to cover their costs and compete effectively with large banks.
  • Limit the multi-network requirement to two networks per card. Nothing in the statute compels a four-network requirement. A four-network requirement will have a particularly debilitating effect on community banks.
  • Withhold approval of the pricing rules until it is in a position to promulgate adjustments for fraud.

"Just last week, Federal Reserve Chairman Ben Bernanke and FDIC Chairman Sheila Bair both expressed concern over the workability of the rule and how it will adversely impact community banks and the communities they serve," Fine said.  "ICBA welcomes dialogue with the Fed so that we can put a stop to this egregious rule, which will punish consumers with higher fees and fewer payment options."

ICBA and eight other national financial services trade associations also submitted a separate joint industry comment letter to the Federal Reserve.

To read ICBA's comment letter, visit www.icba.org.  To speak with an ICBA staff expert about this critical issue, contact Aleis Stokes at 202-821-4457.