The American Bankers Association says legislation introduced in the Senate last 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 on swipe fees would cause “significant and immediate harm to community banks, consumers and the broader economy” and wants them delayed or killed altogether.
Retailers, however, are banking on the caps to ensure they get a larger share of money spent on purchases. Without the caps, higher costs will have to be passed on to consumers, they say.
Durbin, the second-ranking Senate Democrat, has pledged to fight any delay of the caps, saying merchants and consumers should not be bearing the costs of another handout for banks.
In a press statement late Tuesday, the ABA praised the bi-partisan group of senators who sponsored the anti-cap legislation that calls for a two-year delay in the cap. “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.
In the House, Shelley Moore Capito, a West Virginia Republican, and Florida Democrat Rep. Debbie Wasserman Schultz are reported to be putting together a companion bill. Their bill would specify a one-year delay in the caps.
The American Bankers Association noted concerns over the caps 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 parties.
“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 Trustmark National 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.
BEFORE YOU GO…
… we’d like to ask for your support. More people are reading the Mississippi Business Journal than ever before, but advertising revenues for all conventional media are falling fast. Unlike many, we do not use a pay wall, because we want to continue providing Mississippi’s most comprehensive business news each and every day. But that takes time, money and hard work. We do it because it is important to us … and equally important to you, if you value the flow of trustworthy news and information which have always kept America strong and free for more than 200 years.
If those who read our content will help fund it, we can continue to bring you the very best in news and information. Please consider joining us as a valued member, or if you prefer, make a one-time contribution.Click for more info