Industry Continues to Press for Change on New Regulations
February 1, 2011
March 29, 2011
from John M. Floyd & Associates
With credit unions and banks aligned in their efforts to convince regulators and lawmakers to delay implementation of restrictions on debit card interchange fees, the Federal Reserve Board has stated that any attempt to amend or delay the controversial rule is out of its hands and must start with Congress. And efforts from lobbyists, trade associations and individual institutions over the last few weeks may be getting results as lawmakers on both sides of the aisle have voiced concerns over several aspects of the ruling.
Since its passage in late 2010, the interchange measure has come under pressure from three fronts—litigation, potential legislation and the comment period. While it is too early to tell how any of these issues will be resolved, there is enough interest from legislators to consider introducing one or more new bills in the near future to resolve concerns about its effects on small financial institutions and consumers.
In the words of Montana Senator Jon Tester, who is expected to introduce legislation to delay the rule’s effective date, “…Congress needs to stop, study and start over.” According to Oliver Ireland, JMFA compliance attorney, “Legislators often have their own ideas about how to resolve issues and we will have to wait and see what transpires as they continue discussions. Even if a bill is introduced, enactment would be uncertain and the amendment process could result in significant changes.
“Plus,” he cautioned, “while the Fed may be prepared to consider additional costs in setting debit interchange fees, such as some sort of modest fraud adjustment that may result in a somewhat higher fee, the organization is under a lot of pressure from all sides of the issue. In the event the Fed makes these adjustments, it is not at all clear if they can protect smaller institutions that are exempt from pricing provisions but not from the network competition provisions that could cause sharp reductions in interchange fees.”
Ireland concluded, “With the restrictions set to be implemented July 21, financial institutions have the opportunity to press for change by letting both their legislators and the Fed know about their concerns over the proposal that could substantially reduce interchange income and create an untenable two-tier payment system.”