Posted on 17th May 2012 @ 3:13 PM

The results of the Federal Reserve Board’s recent survey of debit card interchange fees did next to nothing to change the banking industry’s strong opposition to the Dodd-Frank Act’s Durbin Amendment.

The Fed’s Regulation II, which implements the Durbin Amendment, provides that an issuer subject to the interchange fee standard (a non-exempt issuer, i.e., one with more than $10 billion in assets) may not receive an interchange fee that exceeds 21 cents plus 0.05 percent multiplied by the value of the transaction, plus a 1-cent fraud-prevention adjustment, if eligible. The interchange fee standard became effective on October 1, 2011.

The Fed found that the data collected after the rule took effect show that the average interchange fee per transaction received by non-exempt issuers in the fourth quarter of 2011 declined substantially from 43 cents to 24 cents, while the average interchange fee received by exempt issuers (those with less than $10 billion in assets) was 43 cents.

So the Durbin Amendment worked, right? That’s not how the banking industry sees it.

ICBA: Model Not Sustainable

The Independent Community Bankers of America said the Fed’s “analysis that the small-issuer exemption worked during the first three months of debit card interchange price-fixing is not surprising because it is too soon for the impact to be felt.”

ICBA said it “continues to believe that community banks and other small issuers will experience a sizeable decrease in debit interchange income over time as payment card networks and merchants continue to implement the Fed’s rule. A model in which community bank debit cards cost twice as much to accept as large bank debit cards because of a government intervention is simply not sustainable.”

ICBA added, “The unintended consequences of government intervention in what was a market-driven and risk-based fee merchants pay for debit card transactions will undoubtedly over time have a negative impact on community banks and the Main Street customers they serve. Community bank customers who use debit cards will face higher costs and fewer product choices.”

Keating: “Strange Things” and “Unnatural Pressures”

Frank Keating, President and CEO of the American Bankers Association, also expressed his doubts. “Due to the Durbin Amendment’s phased implementation, it’s impossible for this initial report to fully reflect or predict the consequences of upending the marketplace with government price controls. It’s just too soon to tell,” he said.

Keating added, however, that while it’s too early to see the Durbin Amendment’s full effect on community banks, its impact on consumers and small businesses has never been more apparent.

“While retailers pocket $7 billion annually from lower interchange costs, their customers pay higher fees as institutions adjust to government-imposed losses in revenue,” Keating said. “At the same time, many small businesses now face higher interchange rates for low-dollar transactions, a classic example of strange things that occur when government creates unnatural pressures to make up for lost revenue. The Durbin Amendment’s primary beneficiaries continue to be big-box retailers who want to reap the benefits of our nation’s payments system without paying for it or passing along their savings to customers as promised.

Keating said the ABA firmly believes the Durbin Amendment’s small-bank exemption can’t work long-term. “No legislation can exempt community banks from market forces, and having two prices for the exact same product is simply not sustainable in a competitive system.”

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