FDIC’s Bair ‘Extremely Concerned’ About Swipe-Fee Cap Proposal
Federal Deposit Insurance Corp. Chairman Sheila Bair is “extremely concerned” that the Federal Reserve’s proposed caps on debit-card “swipe” fees will hurt community banks and consumers, according to a comment letter.
An exemption for banks and credit unions with less than $10 billion in assets “may be unavailable in practice because of market-driven factors not addressed by the board’s proposal,” Bair wrote in a letter to the Fed dated yesterday.
Bair’s letter adds to concerns she expressed last month in congressional testimony and builds on questions raised by Fed ChairmanBen S. Bernanke and Acting Comptroller of the Currency John Walsh about the fee caps required by the Dodd-Frank Act.
The Fed in December proposed capping fees paid by merchants on debit-card purchases at 12 cents per transaction under a Dodd-Frank Act requirement that they be “reasonable and proportional” to processing costs. The caps, proposed by Senator Richard Durbin, an Illinois Democrat, set off a lobbying fight between the financial-services industry and retailers such as Wal-Mart Stores Inc. (WMT) and Target Corp.
Visa Inc. (V) and MasterCard Inc. (MA), the world’s biggest payment networks, set interchange fees and pass the money to card- issuing banks. Shares of both firms plunged more than 10 percent on Dec. 16 after the Fed released its proposal amid investor concern that the caps would damage their business model.
The caps, which would replace a formula that averages about 1 percent of purchase price, may erase as much as $12 billion in annual revenue from banks such as Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM)
Bair’s letter expressed concern that the Fed proposal might force low-income individuals out of the banking system, echoing a view expressed by the National Association for the Advancement of Colored People in a letter to House Speaker John Boehner.
“We are especially concerned about the potential impact the rule could have on the ability of low- and moderate-income customers to gain access to affordable bank products and services,” Bair said in the letter obtained by Bloomberg News.
Responding to Walsh’s comments in a March 9 letter, Durbin questioned the OCC chief’s knowledge of the Fed proposal.
Walsh’s concerns “reflect either a misunderstanding or a misrepresentation of the interchange-reform law that Congress passed,” wrote Durbin, the Senate’s second-ranking Democrat.
House and Senate lawmakers are meeting to draft legislation that would delay the rules, which must be completed by April 21 and take effect by July 21, lawmakers and aides have said.
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