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Community bankers say they'll continue offering free checking for the foreseeable future, even if they're not entirely happy about it. If they followed the big banks by adding fees or changing terms, "we'd lose the accounts," says one local banker.
August 29 -
One of the arguments made against the Durbin restriction on interchange is that it will hurt community banks. Poppycock. Since Durbin explicitly excludes banks with assets under $10 billion from the restriction on interchange, it takes a hyperactive imagination to see how these banks could be hurt by it. Lobbyists have the requisite inventiveness.
March 3 -
The ICBA's Camden Fine says because Dodd-Frank shifts control over routing debit card transactions from issuers to merchants, allowing them to bypass small financial institutions, it negates any benefit for exempt community banks.
February 18
Federal restrictions on debit interchange are still causing sleepless nights for many bankers — even those whose institutions are exempt from the new fee caps.
Banks with assets of less than $10 billion are exempt from the Dodd-Frank Act's restrictions on debit interchange, which will slash the revenues that most banks earn every time their customers shop with their debit cards.
Financial institutions of all sizes have warned that they will have to make up the lost revenue by charging customers for checking accounts that once were free, but so far it is mostly the largest banks that have
Almost 71% of banks with less than $50 billion in assets still offer free checking, according to a survey by the research firm Moebs Services. Community bankers and credit union executives told American Banker last month that they cannot afford to alienate customers by charging for services that are now free.
But even those who are exempt from the law are still bracing for what they see as its inevitable effects.
"The Durbin amendment will definitely have an impact … We're expecting that, but it will take a while," says Marcus Schaefer, CEO of the $1.5-billion asset Truliant Federal Credit Union in Winston-Salem, N.C.
The exemption's ultimate effectiveness depends on how card networks Visa Inc. and MasterCard Inc. structure separate interchange-rate tiers for small banks and credit unions, Schaefer says.
MasterCard said in August that it plans to implement a two-tiered debit interchange fee structure, for banks above and below the $10-billion asset mark. Visa "appears also to have created a two-tiered system" in the new structures it has been sending to credit unions, the Credit Union National Association
A Visa spokesman did not immediately have a comment.
Schaefer also echoes many community bankers in warning about the methods merchants could use to handle exempt debit cards. According to this now-familiar industry argument, retailers could install point-of-sale systems and offer incentives to encourage customers to pay with debit cards that are from big banks, and thus cheaper for the merchants to accept. The small banks would thus eventually lose revenue because their customers will stop using the cards they issue.
The small-bank exemption turned into a political football this year during the banking industry's long campaign to delay or repeal the interchange caps. Community bankers claimed that the exemption
But some skeptics, including card industry veteran Andrew Kahr, called that argument "
Jason L. Ware, an analyst with Salt Lake City-based Albion Financial Group, predicts that the exemption will work in the short term — but that it will not preserve free checking forever.
Right now free checking sets small banks apart and "provides them the opportunity to acquire some customers who defect from the large banks. When that dries up, in other words when this competitive advantage no longer exists and the smaller banks have hopefully fattened their asset base a bit with new customers, they will likely begin to drip in some small fees," he said in an email last week.
