Swipe-Fee Reform Moving Forward

Fed can't meet rules deadline, but they will be issued by July 21 implementation date

WASHINGTON -- U.S. Federal Reserve Chairman Ben Bernanke on Tuesday warned lawmakers that the Federal Reserve will not be able to meet an April 21 deadline for issuing new rules that would cap the debit-card processing fees banks charge retailers, reported Dow Jones. Still, 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 [image-nocss] 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.).

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 position that there is no need for a congressionally mandated delay," said NACS senior vice president of government relations Lyle Beckwith in a separate report.

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 Board 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."

Financial firms, however, could lose billions in fee revenue and argue that the government should not be in the business of setting prices.

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.

"The letter from Chairman Bernanke today is just another step in the very thorough rulemaking process undertaken by the Federal Reserve Board of Governors to finalize debit card fee reforms many small businesses are anxiously awaiting to go into effect this July," added Food Marketing Institute senior vice president of government relations Jennifer Hatcher. "We applaud chairman Bernanke and Federal Reserve for their commitment to completing the final rule in advance of the July 21 implementation date. We look forward to the implementation of debit-card fee reforms on July 21 that will bring much needed relief to small business and our customers."