National bankers group encouraged by bid to quash debit-fee cap

March 15, 2011

Banking & Finance, Politics

By Ted Carter
The American Bankers Association says legislation introduced in the Senate Tuesday gives it hope that banks can avoid a pending cut in the fees they receive from merchants on debit card transactions.
The so-called Durbin amendment, named after sponsor Sen. Dick Durbin of Illinois, mandates the Federal Reserve’s Board of Governors put a cap on the fees that can be collected from merchants that accept a bank’s debit card for purchases. Right now, the Fed is proposing a cap of 12 cents a transaction that would go into effect July 21.
The cap would result in card issuers receiving transaction, or interchange, fees 70 percent lower than their 2009 average, according to Federal Reserve calculations.
The American Bankers Association, or ABA, predicts the caps would cause “significant and immediate harm to community banks, consumers and the broader economy.”
Retailers, however, are banking on the caps to ensure they get a larger share of money spent on a purchase.
In a press statement late Tuesday, the ABA praised the bi-partisan group of senators who sponsored the anti-cap legislation. “We are grateful for the willingness of Sens. Tester, Carper, Coons, Nelson, Corker, Kyl, Lee, Roberts and Toomey to reconsider the harmful unintended consequences that will result from the Federal Reserve’s proposal to implement the Durbin amendment,” the ABA said, referring to Sens. Jon Tester, D-Mont.; Thomas Carper, D-Del.; Chris Coons, D-Del.; Ben Nelson, D-Neb.; Bob Corker, R-Tenn.; Jon Kyle, R-Ariz,; Mike Lee, R-Ut.; Pat Roberts, R-Kan.; and Pat Toomey, R-Pa.
The ABA noted concerns over the Fed’s proposal have been raised in recent weeks by bank regulators, including Fed Chairman Ben Bernanke and Sheila Bair, chairman of the Federal Deposit Insurance Corporation, and by lawmakers from both sides of the political aisle.
“The clear implication is that more time to study the impact of this provision is definitely warranted, especially considering that the Durbin amendment was adopted at the 11th hour, without hearings, committee action or informed debate,” the banking organization said.
In Mississippi, Banking Commissioner John Allison said he worries that the fees will diminish a key non-interest revenue source for banks at a time they are in a struggle of historic proportions. With the lower fees, look for fewer services from the banks and “more charges for those services,” he said in an interview Tuesday.
With the proposed 12-cents cap on interchange fees, Jackson-based regional bank Trustmark projects it would lose between $4 million and $6 million for the slightly less than half year the new cap is in place in 2011, CEO Jerry Host said in his fourth quarter earnings call.
He projected the lower fees would cost the bank $6 million to $9 million in revenue next year.
Birmingham-based Regions Bank’s interchange and ATM income hit $368 million in fiscal 2010, coming off a record quarter in that income category, President & CEO Grayson Hall said in the bank’s 4Q earnings presentation.
He said revenue from the fees climbed 18 percent from the previous year.
At the 12-cents a transaction as proposed today, the cap on interchange fees “will have a significant impact” on non-interest revenues and force banks to come up with new ways to cover the cost of debit card administration, said Evelyn Mitchell, Regions spokeswoman.
“It will change the way the industry does things,” she said.

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