Interchange Fees Forum

From: GoBankingRates.com

A recent Senate vote all but confirmed that the Durbin Amendment would be implemented as planned. As the Federal Reserve scrambles to issue final regulations on interchange fees and debit card issuers scramble to comply, banks look for creative ways to make up for the loss of an estimated $14 billion in revenue.

Many banks have already adapted to less lucrative checking accounts and changed their fee structures accordingly. Still others are focusing on long-term reactions to interchange regulation, from court challenges to innovative revenue models. Here are five ways we’ve seen banks try to compensate for a 12-cent interchange fee limit:

From: American Banker

Advance copies of the Federal Reserve’s Final Rule on Debit Card Interchange and Routing and the Board’s Interim Final Rule (IFR) with Comment Period on adjusting allowable interchange fees for fraud prevention costs.  As the IFR states, 

The provisions allow an issuer to receive an adjustment of 1 cent to its interchange transaction fee if the issuer develops, implements, and updates policies and procedures reasonably designed to identify and prevent fraudulent electronic debit transactions; monitor the incidence of, reimbursements received for, and losses incurred from fraudulent electronic debit transactions; respond appropriately to suspicious electronic debit transactions so as to limit the fraud losses that may occur and prevent the occurrence of future fraudulent electronic debit transactions; and secure debit card and cardholder data.

From: Federal Reserve

From: Bank Systems and Technology

In anticipation of lost debit interchange fees as the result of Durbin Amendment caps, USAA Bank is eliminating its debit rewards program in order to continue its more-popular free checking and ATM fee refunds.

San Antonio-based USAA Bank will eliminate its debit card rewards program in a move it says will offset projected revenue losses from federally-capped debit interchange fees and allow the bank to maintain more popular perks such as free checking accounts and ATM fee refunds.

From: Federal Reserve

The Federal Reserve Board on Wednesday issued a final rule establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and routing restrictions. This rule, Regulation II (Debit Card Interchange Fees and Routing), is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

(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.

From: Bloomberg

A cap on debit-card swipe fees collected by the biggest U.S. banks should be delayed past a July deadline until a challenge to the law is decided, TCF National Bank argued to a federal appeals court.

The limit on the per-transaction charge is part of the Dodd-Frank financial overhaul. Banks with more than $10 billion in assets won’t be allowed to collect more than the cost of providing the service, making profit impossible, TCF said.

“TCF will no longer be able to maintain its financial integrity,” the bank, a unit of Wayzata, Minnesota-based TCF Financial Corp. (TCB), said in court papers.

Editor’s Note:  The Senate vote discussed in the story below further highlights the need for the Federal Reserve to determine the full data security costs associated with debit card transactions, as required by law, and to adjust allowable interchange fees accordingly.  CRE’s letter to the Board discussing cybersecurity costs may be found here.

From: Credit Union Times

Senate Defeats Debit Interchange Delay Measure

From: USBanker

By Camden R. Fine

The data breach at Michaels Stores, which now appears to have affected consumers in at least 20 states, paints a disturbing picture of the sophistication of modern-day criminals and of large retail chains that would rather spend their time lobbying for controls on debit interchange fees than protecting their customers.

In recent weeks, community banks have been hit hard with the costs of maintaining their debit and credit card programs. Although Michaels Stores is taking heat in the press for its security failure, community banks are taking the financial hit.