Source: Wall Street Journal
By Maya Jackson Randall
A bipartisan group of U.S. senators is urging the U.S. Federal Reserve to make sure that consumers aren’t hurt by new rules that would limit debit-card transaction fees.
In a recent letter to Federal Reserve Chairman Ben Bernanke, the senators said they fear that new rules on debit card “interchange” fees could replace market-based pricing with a government-controlled system.
They also expressed skepticism that interchange fee limits will benefit consumers. Price-fixing hurts consumers, they said.
Congress earlier this year signed off on a sweeping package of financial regulations that requires the Federal Reserve Board to issue rules on “interchange fees,” which banks charge merchants each time a debit card is swiped. The Fed Board plans to hold a meeting on the issue later this week, on Dec. 16. In a first for the Fed, the critical meeting will be webcast.
“We write to express our concerns with this provision and to encourage you to ensure that consumer interests are protected in any rate standards you set,” wrote the group, which includes Sens. Thomas Carper (D., Del.), Richard Shelby (R., Ala.), Judd Gregg (R., N.H.), David Vitter (R., La.), and Evan Bayh (D., Ind.). “Many predict that consumers will be faced with additional bank fees as the rule is implemented.”
The new effort to curb these interchange fees has been described as something that will transform the debit-card industry. Fee restrictions could cut into debit-card profits at banks such as Bank of America Corp., Capital One Financial Corp., Citigroup Inc. and J.P. Morgan Chase & Co. Credit-card comparison website CardHub.com has estimated that new rules limiting debit-card transactions could wipe out $9 billion in revenue annually for debit-card issuers.
The rule had ignited a political fight between merchants that want to pay lower fees to banks that issue debit cards and financial firms that will lose revenue because of the fee limits.
The Fed has until mid-April to publish final rules that would ensure that debt-card interchange fees are “reasonable” and “proportional.”
Still, the senators urged the Fed to take its time in considering all of the implications of any new rules.
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