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ICBA: Fed Rule on Debit Interchange Harms Consumers and Main Street Banks That Serve Them

Washington, D.C. (June 29, 2011)—Sal Marranca, chairman of the Independent Community Bankers of America (ICBA) and president and CEO of Cattaraugus County Bank in Little Valley, N.Y., and Camden R. Fine, ICBA president and CEO, released this statement today following the Federal Reserve’s release of the debit card interchange fees and routing rule that will cap fees at a fixed rate of 21 cents plus five basis points of the transaction value to cover fraud costs. It will also require banks to equip debit cards with two network routing options.

“ICBA and America’s community banks remain unequivocally concerned about the harm that the regulation of debit card interchange fees will have on Main Street and the customers they serve. ICBA has fiercely fought the harmful Durbin amendment in the Wall Street Reform and Consumer Protection Act, and the proposed Fed rule, and warned about the unintended consequences of government intervention from the outset.
“While the fee set forth in the Fed’s final rule is better than the originally proposed 12 cent cap, this is still government price fixing at a rate far below the current market-driven and risk-based fee merchants pay for debit card transactions, which frequently includes a merchant payment guarantee. This harsh, below-cost price cap will be incredibly detrimental to community banks and their customers over time. Instead of the proposed price caps, ICBA has encouraged the Fed to set standards for determining whether interchange fees are reasonable and proportional by permitting interchange fees that cover all allowable issuer costs—including fraud prevention and fraud losses—plus a reasonable rate of return.
“We are deeply troubled that the Fed did not include specific enforcement provisions in the final rule to ensure community banks receive the benefit of the statutory small bank exemption designed to insulate the nation’s more than 7,000 community banks and their customers from decreases in interchange revenue and the subsequent increases in customer fees over time.
“While there is no doubt that consumers will feel the effects of this harmful rule once it goes into effect, we will wait to see how the networks implement it and will work with the Fed and the networks to minimize the adverse impact on consumers and their community banks. Additionally, ICBA will promote payment card network rule changes related to liability and enforcement in this new environment of government price controls.”