ABA Urges Fed to Revise Rule on Debit Card Interchange

(Source: ABA) WASHINGTON – The Federal Reserve Board should exercise its authority and make revisions to the proposed rule on debit card interchange to minimize harm posed to consumers, community lenders and the U.S. payments system, the American Bankers Association urged in a letter to Federal Reserve Chairman Ben Bernanke today.

In the letter, ABA President and CEO Frank Keating predicted that failing to make revisions to the rule will have dire consequences, including higher consumer costs for banking products, reductions in bank capital leading to reduced lending capacity, increased failures of community banks and many low-and-moderate-income customers being driven out of the banking system.

“This will result in irreversible harm to local communities and the banks that serve them,” Keating said.

The letter comes after the Tester-Corker amendment to delay implementation of the rule received 54 votes in the Senate on June 8.

“While short of the 60-vote procedural threshold reserved for many controversial issues, it is clear that a majority of the world’s greatest deliberative body has sent a very strong message of concern over the approach taken by the Board in this rule,” Keating said.

Keating asked the Board to consider the cost of maintaining the debit interchange system, noting that the Board’s “narrow interpretation of the statutory language fails to consider a broad range of costs necessary to carry out individual transactions.”

“Such an interpretation excludes, among other elements, an appropriate allocation of fixed and overhead costs, as well as such elements as fraud losses, network fees applicable to individual transactions, and an appropriate allocation of customer service costs,” he said.  “We strongly believe that such costs need to be included in any cost calculation under existing law.”

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