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ICBA: Proposed Interchange Rules Will Disadvantage Community Bank Customers

Washington, D.C. (December 16, 2010)- Karen Thomas, senior executive vice president of government relations and public policy at the Independent Community Bankers of America (ICBA), today issued this statement following the Federal Reserve Board's release of proposed rules governing debit card interchange fees and routing.

"This proposed rule confirms what ICBA has long warned: that government price-fixing of debit interchange will benefit big-box retailers while passing the buck on to consumers and disadvantaging community banks. While we recognize the constraints placed on the Federal Reserve by the misguided Durbin Amendment to the Wall Street Reform Act, the fact remains that if implemented as outlined today, this rule will unquestionably lead to more consumer fees, fewer product choices and greater consumer confusion regarding card acceptance. As a result of the Durbin Amendment, the concept of ‘free checking' is likely a thing of the past.

"Unfortunately, the proposed rule leaves community banks and their customers vulnerable to the inevitable cost-shifting and burden that the networks and large issuers will now push off on small issuers. In today's electronic payments system, the networks level the playing field between large and small issuers. The Durbin Amendment erases the market mechanisms that make it possible for community bank customers to obtain the wide variety of competitive products and services they expect from their financial institution, all so that large retailers can make more money and have more control over the point-of-sale customer experience.

"ICBA did not seek the exemption for institutions with less than $10 billion in assets and was a vigorous opponent of the interchange amendment. This proposed rule, if finalized in this form, will not work in the marketplace to protect community banks or their customers.  Today, trillion-dollar institutions and small community banks all operate from the same basic playbook to offer debit card services to their customers. It is naïve to think that a reduction in debit interchange of the scale proposed today to large issuers will not be felt with equal pain by those purportedly ‘carved out' from the provision.

"The scale of the reduction in debit interchange proposed today dwarfs even the price controls attempted by the Reserve Bank of Australia, which resulted in consumers footing the bill for what amounted to a government-mandated subsidy to big retailers.

"ICBA will continue to work with the Federal Reserve to revise the proposed rule and address its negative consequences as much as possible.   We urge the Federal Reserve to enforce its congressional mandate to ensure merchants cannot discriminate against card issuers, which will help protect community bank customers.  The agency should exercise its discretion as provided by Congress to minimize unintended consequences for these Main Street institutions and their customers.

"These proposals will have negative consequences for Main Street communities, but the debate is not over. ICBA is committed to working with the Federal Reserve as it implements these rules to mitigate any adverse effects they may have on community banks and the customers they serve."