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Durbin Isn’t a Done Deal

By: Bill Poquette

It may not be too late. The comment period on the Federal Reserve’s interchange fee rules mandated by the Durbin Amendment to the Dodd Frank Act ended on Feb. 22, but final rules are not scheduled to be published until April 21 and the effective date is to be July 21.

On the eve of the Feb. 17 hearings scheduled by the Subcommittee on Financial Institutions and Consumer Credit of the House Financial Services Committee, the Independent Community Bankers of America released results of a survey documenting how the rules would harm community bank customers. In addition, opposition was building from some unlikely sources, including the Michigan legislature and a coalition of consumer groups.

In the ICBA member survey, more than 90 percent of community banks said they will have to charge customers for services that are currently offered for free. Seventy-two percent said they will have to implement annual or monthly charges for use of a debit card and 50 percent said they will have to impose a charge each time a customer uses a debit card. More than 70 percent of the community banks said they will no longer be able to afford free checking accounts and a similar percentage said they would have to charge for services such as online or mobile banking.

Among other developments on the interchange issues, the Michigan legislature passed a largely symbolic but nevertheless attention-gathering bipartisan resolution against the Durbin Amendment. And the Competitive Enterprise Institute, together with the American Consumer Institute and other groups, wrote to House Financial Services Committee Chairman Spencer Bachus, R-Ala., and Ranking Member Barney Frank, D-Mass., calling for repeal, delay or substantial revision of the amendment. Representatives Bachus and Frank and at least a dozen senators are reported to have concerns about the measure.

Also adding strength to the banking industry’s arguments was the testimony on Feb. 17 of Federal Reserve Chairman Ben Bernanke and FDIC Chairman Sheila Bair, both of whom acknowledged flaws in the amendment and the Fed’s proposed rules.

According to John Berlau, director of the CEI’s Center for Investors and Entrepreneurs, “The effects that card holders are already seeing in anticipation of the Durbin Amendment include a curtailment of free checking or a requirement of a much higher balance to maintain it. If the rule goes through, future effects likely would be reduced rewards and the other new fees. And despite technical exemptions from some (but not all) parts of the measure, community banks and credit unions will still likely be hit as the network interchange rate is forced to change.”

It is not too late for bankers to keep fighting on this issue, in the opinion of Curt Everson, president of the South Dakota Bankers Association. Newly elected members of Congress need to understand the detrimental effects of the Durbin Amendment, he wrote in the January issue of the association’s South Dakota Banker magazine. He added, “Perhaps returning members who had almost no chance to debate — let alone understand — the real effects of the amendment might have a case of buyer’s remorse.”

Community bankers have the high ground here and with support building from outside the industry and influential politicians willing to talk, some relief if not a total victory may be in sight.

Bill Poquette is editor-in-chief of BankNews.

Copyright © March 2011 BankNews Media