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Richard Davis, the top executive at U.S. Bancorp and chairman of the Financial Services Roundtable, said it's a toss-up as to whether the Federal Reserve presses ahead with a 12-cent proposed cap on debit interchange transactions.
April 19 -
Sen. Jon Tester took to the Senate floor to lobby for support of his bill to delay the Durbin interchange rule by two years, arguing it would hurt small business and community banks.
April 14 -
Rep. Barney Frank said he was optimistic the Senate would soon act on a Sen. Jon Tester bill that would delay for two years a rule that would restrict interchange fees on debit cards.
April 7 -
Judge Lawrence Piersol of the U.S. District Court for South Dakota has denied the government's motion to dismiss TCF Financial's lawsuit over debit fee regulation.
April 5 -
When a number of large banks recently upset their debit card customers by announcing cuts to rewards, they blamed the pending debit interchange cap. What, or whom, will they blame if Congress changes or delays the cap's implementation — and they don't reinstate the rewards programs?
March 31 -
Fed Chairman Ben Bernanke said the central bank required more time to review the more than 11,000 comment letters it has received on its interchange proposal issued in December.
March 29 -
Speaking at the annual ICBA convention, Ben Bernanke assured community bankers the Fed will attempt to protect them as it finalizes its rule capping debit interchange fees.
March 23
WASHINGTON — As Congress continues to struggle over whether to delay a pending Federal Reserve Board plan to cap interchange fees for debit cards, a key question remains unresolved: How far is the central bank prepared to go on its own to modify the rule?
Fed Chairman Ben Bernanke acknowledged last month that the agency would be unable to finalize the rule by a April 21 deadline as it wrestles with the 11,000 comment letters it received on the subject. Many observers see this as a sign the Fed may make significant adjustments, including lifting a proposed 12-cent interchange cap or altering an exemption for community banks to make it more effective.
But it's unclear just how willing the Fed is to abandon its initial approach.
"They have ample room to make some changes, but I don't think they can throw out the old proposal and come out with something different; nor do I think they are going to take the old proposal and dramatically increase the number from 12 cents to 24 cents," said Gil Schwartz, a partner at Schwartz & Ballen LLP.
By most accounts the Fed's decision to pause is indicative of the seriousness of its intention to consider all sides of the issue. Bernanke wrote to lawmakers that the Fed remained committed to finalizing the rule by July 21, when it is scheduled to go into effect, but needed more time to weigh the issues that commenters raised.
"If you wanted to adopt the rule as proposed, I'm not sure you need the extra time," said Oliver Ireland, a partner at Morrison & Foerster LLP.
"But Mr. Bernanke's letter would suggest they're looking at some of this stuff pretty hard."
Under the Dodd-Frank law, the central bank is required to ensure that debit interchange fees are "reasonable and proportional."
But stakeholders dispute whether the Fed succeeded in that effort, and perhaps took too many liberties in setting a standard. Bankers and industry representatives argue, for example, that the 12-cent cap is too low and ignores costs of running a debit system, including fraud prevention. Acting Comptroller of the Currency John Walsh has sided with the industry on such an issue, arguing the Fed proposal is too narrow.
Schwartz said the Fed has room to make "modest" changes to the proposed cap, but it wouldn't move it high enough to satisfy industry critics.
"They could alter the proposal from a procedural standpoint and come up with a higher number at least to get it closer to something that would provide a degree of return for the banks, but not something that would be regarded as anywhere near acceptable or relative to where they are today," Schwartz said.
The Fed has already acknowledged in its legal filings in its lawsuit with TCF Financial Corp. that it would have discretion to adjust the interchange-fee ceiling.
But not everyone is convinced the Fed would go very far in that direction, especially on what is considered one of the most controversial aspects of the plan.
"I don't see the board backing off on its proposal," said Ernest Patrikis, a lawyer at White & Case LLP. "The two sides are just so far apart. I can't see the board making changes that will favor one side over the other. It's just too difficult now."
Observers said that politically, the Fed likely will try to wait it out, hoping for Congress to act instead.
"There is not a whole lot of wiggle room there," said Cornelius Hurley, director of Boston University's Center for Finance, Law and Policy. "The politics of this thing seems to change every day with old allies now being adversaries. You get the impression in this season of Easter that this is a cross the Fed would just as soon not to have to bear. Putting it off as long as it can gives Congress, or somebody else, time to step in and say, 'Timeout, let's take another look at this.' "
On one side of the issue are the big-box retailers and merchants, which would like to see lower swipe fees on debit cards.
They are staunchly opposed by the larger banks, which claim they would lose up to $12 billion in revenue as a result of the new rule.
Sen. Jon Tester, D-Mont., is pushing a bill to delay the interchange rule by two years while its impact is studied.
While the legislation remains a tough sell, one argument has gained traction: that community banks, which are ostensibly exempt from the plan, may still be damaged by it.
Although the proposal only applies to institutions with more than $10 billion of assets, industry executives argue it would put smaller banks at a competitive disadvantage, forcing them to lower fees or potentially face reprisals from retailers.
Some observers say the Fed might find a way to improve the exemption, especially considering that Bernanke has acknowledged that in its current form, it might not work.
"It may not be the case that, in practice, they are exempt, but I don't know for sure," Bernanke told lawmakers in February at a hearing before the Senate Banking Committee.
Bernanke has already suggested that one way to address the issue would be for Congress to require the card networks to differentiate.
Federal Deposit Insurance Corp. Chairman Sheila Bair has already backed such an approach. She urged the Fed to adopt a two-tiered system to ensure that community banks are truly exempt.
Patrikis said that most agree the board would "try to ensure that networks have provisions for small banks so that they could charge an interchange fee that was higher than whatever the board is mandating."
But it's not clear how the central bank would be able to do that, or if any fixes by regulators could ultimately correct the problem. Some said that's not possible.
"There's been a lot of concern of the small-bank exception, but I for one don't see how they fix that," Ireland said. "Maintaining any significant difference in rates in the market just over the long run isn't going to happen. Market forces are going to drive those rates together."
