More lawmakers cautioning Fed on interchange rules

By Peter Schroeder – 12/30/10 03:55 PM ET

The number of lawmakers cautioning the Federal Reserve on its proposed rules limiting the fees banks can charge on debit cards continues to grow, as a bipartisan group of high-profile lawmakers fret over the rulemaking.

Thus far, 10 Republicans and eight Democrats have either warned the Fed to tread lightly on the interchange fee rules, or opposed them outright. That includes the two titular sponsors of Dodd-Frank, retiring Sen. Chris Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.). Both have cautioned that unintended and overreaching consequences could result if rules are not carefully crafted by the central bank.

The so-called “Durbin amendment,” named after its primary backer, Senate Majority Whip Dick Durbin (D-Ill.), was a late addition to Dodd-Frank. It was approved for inclusion in the bill by the Senate in May, and survived the conference committee reconciling the House and Senate measures. The Fed proposed rules implementing the provision went into effect Dec. 16.

The provision and accompanying rules have been blasted by bankers who see their fee revenue shriveling, while hailed by retailers that stand to save when accepting debit cards. The Fed’s proposal would limit banks to assessing fees in the range of seven to 12 cents per transaction, a 73 percent drop from the current average of 44 cents.

Most recently, incoming House Financial Services Chairman Spencer Bachus (R-Ala.) and committee vice-chairman Rep. Jeb Hensarling (R-Texas) have told Fed Chairman Ben Bernanke that the statutory deadline for final rules of April 21 is too soon and the central bank should proceed in a “cautious and deliberate manner.”

Noting that lawmakers spent “little if any time” discussing the effects of the provision before it became law, the Republicans told the Fed to slow the rulemaking process.

“Hastily written rules may end up doing more harm than good,” they wrote in a Dec. 17 letter.

Bachus has promised to begin a significant review of provisions in the financial reform bill once Republicans take over the House in the next Congress, and lobbyists expect the GOP will schedule hearings on the fees in the new Congress.

On the same day, Sen. Claire McCaskill (D-Mo.) told the Fed of her “broad concern” with the new rules in her own letter. McCaskill was one of 10 Democrats that voted against the amendment.

In a Dec. 9 letter, a bipartisan group of 13 senators warned the Fed to avoid “price-fixing” in its rules. The letter included Democrats who opposed the amendment, like Sen. Mark Warner (D-Va.), and Republicans who supported it, such as Sens. David Vitter (R-La.) and Mike Crapo (R-Idaho).

They warned that such price fixing “creates more problems than it solves and is antithetical to our capitalist system and the notion of free enterprise.”

Meanwhile, Durbin has stood by the provision, saying the government must step in to rein in unchecked fees.

“There is literally no competition when it comes to credit and debit cards,” he said on the Senate floor Dec. 22. “That is why the government has to step in. That is why we think the Federal Reserve is moving in the right direction.”

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