February 15, 2024

MBA, State Bankers Associations Urge Fed to Withdraw Misguided Proposal to Further Reduce Debit Interchange

MBA joined the American Bankers Association and state bankers associations in expressing their strong opposition to the Federal Reserve’s misguided proposal to reduce the regulated debit interchange cap under Regulation II. In their letter, the groups urged the Fed to withdraw the proposal pending a rigorous study of its potential impact, as well as the cumulative impacts of the tsunami of newly finalized and pending regulations from the banking agencies.

As previously shared by MBA, the Fed proposed revising the Durbin Amendment caps in Regulation II to lower the cap from its current rate of 21 cents and .05% of the transaction, plus a 1-cent fraud-prevention adjustment, to 14.4 cents and .04% per transaction and a 1.3 cents fraud-prevention adjustment, effective June 30, 2025. The proposal would apply to debit card issuers with $10 billion or more in consolidated assets.

The proposed rule is built on a misapplication of the law and a false policy premise that the secure payments system that drives so much economic activity and customer value should somehow be costless, the associations said. The groups further warned that the proposed 30% cut in debit interchange would be potentially severe for both banks and their customers.

“Not only will this proposal constrain — on an ongoing and potentially ever-reducing basis — the revenue used to facilitate payments, secure these systems and account for fraud, but importantly it will also deplete revenue that banks rely on to provide low- and no-cost basic banking services consistent with their values and mission as community leaders,” the associations said. “Customers who struggle to meet minimum balance requirements or pay monthly maintenance fees on their deposit accounts are likely to feel the squeeze from this rulemaking as the direct cut in interchange revenue is offset, at least in part, by raising those requirements.”

The associations said the “regressive formula” in the Fed’s proposal “puts the greatest strain on the smallest financial institutions, which will lead to further industry consolidation.” They also noted the proposal’s direct impact on customers and the increased costs for checking and basic banking services, writing that “these impacts are predictable and avoidable.”

The groups also said that despite claims to the contrary, the proposed rule is not required by the Dodd-Frank Act and must instead be justified based on statutory authority and the strictures of the regulatory process. The associations concluded by urging the Fed to withdraw the proposal.

“Ultimately, we believe the only way forward that is consistent with the Federal Reserve’s statutory obligations and prudent regulatory conduct is to withdraw the rule to allow for the data and the courts to catch up and to address the proposals’ other deep-seated flaws, including its contribution to the cumulative impact of regulation on customers and the community banking model,” they said.

MBA President & CEO Jackson Hataway discussed the Fed’s proposal in a recent issue of The Missouri Banker, noting that the board has “lost sight of its mission, values and responsibilities.”

“Instead of attempting to preserve the vitality and diversity of the U.S. banking system, the Federal Reserve is placing more pressure on community banks to consolidate as operational costs increase while revenues are artificially and arbitrarily limited,” Hataway wrote.

MBA urges bankers to contact the Fed to express their opposition.

Hawley Co-sponsors Bill Targeting Major Routing and Interchange Changes

MBA is disappointed to report that Sen. Josh Hawley is now co-sponsoring legislation that has devastating impacts for consumers, small businesses and community financial institutions.

Hawley has sided with Sens. Dick Durbin, D-Ill., and Roger Marshall, R-Kan., in supporting government mandates for credit card routing networks. The deceptively titled Credit Card Competition Act would give enormous power to government bureaucrats by putting the Federal Reserve in charge of the U.S. credit card system and placing a federal mandate on card networks and routing. The result could mean fewer card options and benefits — like popular rewards programs — for consumers and could make it harder for community banks to even offer cards.

“Despite our repeated discussions with Hawley’s staff, the senator has chosen to ignore our grave concerns with the bill and the threats of increased data breaches,” said MBA President and CEO Jackson Hataway. “Instead of allowing financial institutions to choose from routing networks that offer the best customer experience and data security protection, Hawley has thrown his support to a bill that props up highly profitable big box retailers while harming Missouri families and financial institutions.”

Hawley’s support is in direct opposition of Congressman Blaine Luetkemeyer, who has said measures like this offer “no evidence of benefits to the economy or everyday Americans.” He said the Credit Card Competition Act would cut services and benefits without achieving savings for consumers, noting the consequences would be “even more devastating for consumers.”

“What proponents of the Credit Card Competition Act apparently do not understand is that services cost money. When you eliminate the ability to pay for a service, you eliminate the service itself. Interchange is no different,” Luetkemeyer wrote in an op-ed. “Reports about credit card rewards disappearing are true — an account would not earn or obtain points if the charge doesn’t occur on the point provider’s network — but the loss of fraud protection would be devastating to small retailers and consumers.”

MBA will continue to fight against this bill’s passage. MBA highly urges bankers to express their disappointment to Hawley and speak with Sen. Eric Schmitt and your House representatives to express your opposition to the bill. 

MBA Accepting Applications for Bankers to Serve on Boards, Committees

Bankers can enhance their leadership skills through volunteer opportunities from MBA. Each year, MBA seeks bank employees with a variety of skills and expertise to serve on various committees to increase their engagement with MBA and the banking community.

“Bankers serving on our committees provide a valuable resource to our association and the banking community,” said MBA Director of Member Services Melissa Hart. “Their participation on these boards and committees allows bankers to share their knowledge and expertise with fellow bankers, as well as advise MBA on various issues.”

MBA currently seeks bankers to serve on its boards and committees for the upcoming year (2024-2025), including two new committees — lending and credit and communications/marketing. Each offers opportunities to be more engaged with MBA and the banking community. Please review the leadership opportunities and email completed applications to Peggy Mantle by Friday, Feb. 16. MBA appreciates your involvement with the association.