By Maya Jackson Randall
March 10, 2011
The fight over federal efforts to rein in financial firms' debit card processing fees continued Thursday, with bank officials presenting their case to Federal Reserve Board members and retailers rallying in the rain outside of the U.S. Capitol.
At the Federal Reserve's consumer advisory council meeting Thursday morning, consumer advocates and financial industry officials engaged in an impassioned debate over the impact regulation of so-called interchange fees could have on consumers.
Officials representing Capital One Financial Corp. (COF), Community Financial Services Bank, KeyCorp's (KEY) KeyBank and the UW Credit Union said the Fed's proposal to slash the debit card transaction fees financial firms charge retailers would deal a significant blow to the nation's credit unions, community banks and consumers.
At issue is the Fed's proposal to cap interchange fees, also known as swipe fees, at 12 cents per transaction, a dramatic cut from the current 44 cents per transaction average. The Fed unveiled the proposal in December and a lobbying war ensued. On one side, retailers back the Fed's plan as a solid first step towards curbing the fees they pay banks every time a consumer swipes a card in the cash register. On the other side, banks are fighting to delay or kill the new fee limits mandated by the Dodd-Frank financial overhaul.
"This isn't just a large bank issue," said Capital One Senior Vice President Andy Navarrete, who is a member of the Fed's consumer advisory council. He urged Fed officials to take time to study the impact of the proposal on consumers and small businesses.
Mike Long, executive vice president of UW Credit Union in Madison, Wisc., said his credit union estimates that it would have to impose a $60 or $70 fee on each checking account holder in order to recoup lost revenue.
However, the discussion escalated when consumer advocates on the panel pushed bank against financial firms' threats to charge a slew of new fees in order to comply with new regulation of debit card transaction fees.
"I can't believe that...the banks are making this threat" without any discussion about whether that's appropriate, said Kirsten Keefe, a staff attorney at New York-based public interest law firm Empire Justice Center. She added that it might be time for large banks "to start readjusting their profit expectations" and to be more fair to consumers.
Keefe and other consumer officials voiced particular concern about banks imposing steep fees on low-to-moderate income customers, saying such a move could push many customers out of the banking system.
"We should not allow that," said Dory Rand, president of Woodstock Institute, a policy organization in Chicago that focuses on financial issues impacting low- income Americans.
Several consumer advocates said the Community Reinvestment Act provides protections for low-income individuals, and banks shouldn't be allowed to raise fees with no accommodation or consideration for lower-income families and communities.
Still, Long of the UW Credit Union argued that small banks can't absorb cuts in revenue in the same way that large financial firms can.
"I'm not one of the greedy bankers," he said, noting that his credit union is a not-for-profit financial cooperative, and many of his members are college students. He added that credit unions have a significant number of low-to- moderate income members. "That's our bread and butter," he said.
Keefe responded by saying she isn't opposed to financial firms charging fees, but those fees should be reasonable.
Fed officials, who must review thousands of comments on their interchange proposal before moving forward with a final rule by late April, listened to the debate, but did not weigh in.
Meanwhile, retailers took to Capitol Hill, participating in a rally and then conducting face-to-face meetings with lawmakers. The merchants argue that the Fed's interchange regulation is necessary to fix an interchange fee system that isn't competitive. They say financial firms and card issuers are charging excessive fees that are hurting small retailers across the country.
"The rain isn't stopping today, and neither are we...we've come too far in this fight to let a little rain stop us," said 7-Eleven franchise owner, Dennis Lane, according to a press release.
Also, Sen. Richard Durbin (D., Ill.), who wrote the amendment requiring the Fed to regulate swipe fees, said he would fight banks' efforts to undermine his legislation.
"I'll continue to stand with small business owners as we fight Wall Street's desperate attempts to block reforms from going into effect," he said, according to the press statement.