WASHINGTON -- What could have been a defining date in the battle for fairness in interchange fees will instead likely be just another day at the office in Washington after Federal Reserve chairman Ben Bernanke announced a delay in the decision of just how debit-card fees will be regulated.
Initially, today, April 21, was to be "D-Day" for the Fed to announce the final rules by which debit-card fees will be regulated. Instead, last month, Bernanke announced that the decision would be delayed until July.
"Bernanke told Congress a couple weeks ago that they were not [image-nocss] going to meet the April 21 deadline, that they would [make a decision] by July 21," Lyle Beckwith, senior vice president of government relations for NACS, told CSP Daily News, because there were so many comments to go through.
Bernanke said the Fed plans to have rules issued by July 21, which is when they would go into effect.
He noted that more than 11,000 commenters weighed in on the Fed's proposal to rein in interchange fees, and he said the information provided in those comments is important for assessing the effects of the rule. "Because of the volume of comments and the complexity of the issues raised in those comments...we have concluded that we will be unable to meet the [Dodd- Frank Act's] directive that the board issue final interchange fee standards by April 21," he wrote in letters on March 29 to leaders of the Senate Banking and House Financial Services committees.
He sent letters to House Committee on Financial Services chairman Spencer Bachus (R-Ala.) and ranking member Barney Frank (D-Mass.), and to Senate Committee on Banking, Housing & Urban Affairs chairman Tim Johnson (D-S.D.) and ranking member Richard Shelby (R-Ala.).
Frank, who helped create the Dodd-Frank Wall Street reform law, on Tuesday said he would support a delay in implementing a reduction in interchange fees. "The Federal Reserve's announcement that they cannot meet the deadline on interchange fees confirms my view that this is the only part of the financial reform bill that needs to be amended. For this reason, I support legislative action to postpone the deadline so that we can revisit it," Frank said in a statement.
Retail groups applauded Bernanke's commitment to complete final debit swipe-fee reform. "This confirms the Fed's commitment to putting forth a rule that has been thoroughly vetted, and underscores the MPC [Merchants Payment Coalition] position that there is no need for a congressionally mandated delay," said Beckwith separately.
The Fed did not have much time to write the rules, said Dow Jones. The Dodd-Frank package required it to prescribe regulations by April 21, just nine months after the date the overhaul became law.
"We recognize that the Act's provisions limiting interchange fees become effective by their terms on July 21 even without bard regulations, and we are committed to completing the rulemaking for the provisions in advance of that date," Bernanke said. "I want to assure you that we are devoting substantial resources to these efforts to ensure that we give the issues the careful consideration they deserve."
Bernanke, in his letter, signaled that it is important for the Fed to take its time to get the regulations right. He noted "the importance of debit cards as a method for consumers" and others to make payments. The number of debit card transactions has soared from about 8 billion in 2000 to 38 billion in 2009, Bernanke noted.
"The issues raised by the comments are complex and difficult and are significant to the payments system, its providers and its users," he said.
The Dodd-Frank financial overhaul Congress passed last summer charges the Fed with regulating interchange fees so that they are "reasonable and proportional" to costs incurred. In December, the Fed unveiled a plan to cap the swipe fees at 12 cents per transaction, a 70% cut from the current 44-cents-per-transaction average.
The regulation is a win for retailers who have long fought the fees banks charge them. Merchants say the interchange fee system is not transparent and banks are able to dictate the fee levels and there is no room for negotiation.
Brian Dodge, a spokesperson for the Retail Industry Leaders Association, said merchants are not dismayed by the delay and argued that Congress should beat back efforts to force the Fed to put the rules off by a year or more. "Chairman Bernanke's letter is proof positive that the Federal Reserve is approaching this rulemaking thoughtfully," he said. "Congress should not step in and interfere with what is clearly a thorough fact-based process. Among the many of comments the under review are thousands of letters from merchants desperate for relief from these excessive fees."
The Fed proposal has stirred up a lobbying frenzy with financial firms large and small trying to convince lawmakers to delay the fee caps. A bill Senator Jon Tester (D.-Mont.) introduced earlier this month would delay the Fed's rule by two years, but it faces significant challenges in gaining enough supporters to become law.
Beckwith said he expects the Fed to move forward with regulations similar to those recommended earlier this year, with perhaps some minor changes, likely in the banks' favor.
"Common wisdom is they're not going to lower the [recommended cap]," he said, "but from the pushback from the banks, there may be some additional money allocated for fraud or other concerns. But nobody really knows."
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