Nearly 80% of commenters find Fed’s debit card rule will negatively impact community financial institutions and consumers
Nearly 80% of commenters – including academics, activists, banks and credit unions, consultants and fintechs, individuals, non-profits, payment card networks, and trade associations – oppose the Federal Reserve’s proposed rule that would lower the cap on debit card interchange fees, according to a new analysis the American Bankers Association sent to the Fed today.
“The broad swath of opposition to the Fed’s amendments to Reg II reflects just how harmful this proposal will be,” said Tom Rosenkoetter, senior vice president and executive director of the American Bankers Association’s Card Policy Council. “Commenters from a wide range of perspectives agree that community financial institutions, small businesses, and consumers will bear the real cost. Many point out that additional government price controls on debit card interchange could threaten the availability of simple, low cost Bank On-certifed accounts, which have helped reduce the number of unbanked in the country. By finalizing this rule, the Fed would be jeopardizing the important progress made to ensure all Americans can access affordable banking services.”
On Nov.14, 2023, the Fed issued a notice of proposed rulemaking lowering the debit card interchange fee to a base component of 14.4 cents, an ad valorem component of four basis points multiplied by the value of the transaction and a fraud prevention adjustment of 1.3 cents.
In response to these changes, more than 300 individuals and organizations wrote letters to the Fed opposing the proposed rule during the public comment period. Notably, the commenters discussed the rule’s harmful effects on consumers — particularly minority households — and community banks:
Dr. Ronald J. Stephens, a professor at Purdue University, wrote about the detrimental effects the rule will have on Black households:
Enough Black Americans became at risk of becoming unbanked after the 2011 price cap. This problem will only increase in size and scope if the Fed makes the price cap more severe today.
Kish Bank in Pennsylvania warned that community banks will also be negatively affected:
Regulators need to recognize the impact of their decisions on America’s community banks that serve the full range of banking needs across a wide spectrum of consumers, small businesses, and communities. We do not have the capacity to offset this revenue source and the lower income communities which we serve will be unable to pay service charges on their current free checking accounts.
Other letters highlighted in the report discuss how the proposed rule will reduce investment in fraud prevention technology and benefit large retailers at the expense of small businesses.
In addition, a coalition of free-market organizations wrote a letter calling on the Fed to fully account for the cost of the rule:
The Proposal neither offers a substantive cost-benefit analysis nor justifies a need to update the debit card interchange fee cap on a biennial basis. The Fed acknowledges that it “cannot determine at this time whether the potential benefits of the proposal to consumers exceed the possible costs imposed on consumers and financial institution.” This alone should be grounds for withdrawing the Proposal.
Given the overwhelming number of public comments in opposition, ABA urges the Fed in its letter to withdraw the proposal.
Read the full analysis here: https://www.aba.com/-/media/documents/letters-to-congress-and-regulators/12122024-reg-ii-analysis-report-with-letter.pdf.