• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Bernanke on Dodd-Frank Fallout: Debit Card Fee Caps Threaten Small Banks

    Federal Reserve chairman Ben Bernanke has delivered yet another ominous prediction about Dodd–Frank fallout, telling the Senate Banking Committee last week that government dictates on debit card fees “could result in some smaller banks being less profitable or even failing.”

    Although not the first to recognize the problem, the Fed chairman’s remarks certainly strengthen the case for eliminating the ill-conceived “swipe fee” regulations.

    The fees (a.k.a. “interchange fees”) refer to bank charges paid by retailers to process debit card transactions. At the urging of some of the nation’s biggest retailers, lawmakers fashioned a provision within the vast new regulatory regime known as Dodd–Frank that requires the central bank to impose new limits on the fees that have averaged about 44 cents per transaction (or 1.14 percent of total purchases).

    The Fed’s proposed cap of 12 cents per transaction—a reduction of 72 percent—has provoked an outpouring of comments from the banking sector and other “stakeholders.” And for good reason: the proposed limit translates into a potential loss of $12 billion in bank and credit union revenues.

    Financial institutions with less than $10 billion in assets would be exempt from the swipe fee regulation, but many small bankers still foresee problems. Higher swipe fees on their cards, they say, could undermine their competitiveness.

    As Bernanke told lawmakers: “There are good reasons to be concerned.… It’s going to affect revenue of small issuers. And it could result in some smaller banks being less profitable or even failing.”

    The fee cap, in conjunction with a slew of other new credit card regulations, is also costing consumers in the form of higher fees on other banking services to make up for the lost revenues. As The Heritage Foundation’s James Gattuso reported, major banks such as JP Morgan Chase, SunTrust, and Wells Fargo have announced that they will no longer be offering rewards to some or all customers. And just last week, an analysis released by the Pew Charitable Trusts found that 33 percent more banks were charging annual fees on credit cards this year compared to last.

    (Notwithstanding that dramatic finding, the folks at Pew chose instead to headline their finding that median advertised interest rates for bank credit cards remained unchanged while cash advance and penalty interest rates held steady. Of course, those rates are now regulated by the Fed.)

    Legislation has been introduced in both the House and Senate to postpone the “swipe fee” rules for a year or two to “study” the regulation. But what’s really needed from Congress is action, not research, on the unnecessary and injurious swipe fee rule. As is the case with so much of the Dodd–Frank monstrosity, the consequences of government interference in the finance sector are worse than the problem they’re intended to remedy.

    Posted in Economics [slideshow_deploy]

    18 Responses to Bernanke on Dodd-Frank Fallout: Debit Card Fee Caps Threaten Small Banks

    1. Dennis, Long Beach says:

      Bernanke tells Senate that debit fees will cause some small banks to fail, meanwhile he has ignored entire mortgage industry, except Big Four (Chase, BofA, Wells, Citi) who have told him and Fed the originator compensation rules imposed by the Fed on the mortgage industry will do the same to many mortgage brokers. Bernanke is like the rest of Washington, they select winners and losers, he doesn't like it when Dodd-Frank does this but has no problem with his people do it.

    2. Common Sense, Arvada says:

      Some of us are trying to live fiscally responsible lives and don't use credit cards. My family uses debit cards and cash exclusively. If I'm limited to $100 or less transactions as is rumored, I will have difficulty using my card for online shopping or even grocery store shopping. At least at the grocery store I can stop and withdraw cash first, but that's not an option online.

      The government needs to butt out of businesses and the economy, they've already trashed things enough.

    3. Mike, Wichita Falls says:

      I have to laugh when I read that legislation has been introduced to postpone the "swipe fee" rule for a year or two to "study" the regulation. This is so rich.

      Why didn't the law didn't grant Bernanke or some other bureaucrat the authority to grant waivers from the swipe fee? Now how will Obama be re-elected? The statists must have been asleep. Certainly lawmakers saw the brilliance of waiver-granting authority in Obamacare to delay disaster in the private sector. This just proves that they didn't read the bill before they voted on it. Shame on them.

      Also, they want some time to study the regulation. Excuse me? Isn't that what they should be doing before any bill becomes law? Committee hearings, expert testimony, debate, etc. Oh, I'm sorry…they had to ram this bill through the House in a lame-duck session before the new Congress was sworn into office where it had ZERO chance.

      In my business, as in probably all businesses, we spend a great deal of time scrutinizing a project before we execute, and it only hurts our bottom line if it fails. Congress should spend at least as much time doing so because all Americans suffer when they make a bad decision. What a pathetic, embarassing institution Congress has become. I'm just glad that our nation isn't yet defined by them.

    4. Rod, Texas says:

      I've read the Durbin amendment and it will cause most banks to limit the dollar amount you can charge on your debit card. Some banks are setting that limit at $100. I only use a debit card and not a credit card as I like to do cash only type of transactions in order to stay out of debt. With this limit, I will not be able to shop online or buy airline tickets, etc. for any amount over $100. Talk about slowing the economy! This law needs to be repealed ASAP and forget about additional studies. By the way, you may Google, "Dubin Amendment", and read more on this matter. Then write or call your Representative and Senator and ask that they repeal the law.

    5. Molly Dow Dillard Or says:

      It is all part of total gov't control whatever "ism" that is called. Just what Obama promised and we "ain't seen nothing yet".

    6. Chris, NC says:

      Are we really ready to go back to the days where everyone pays with cash? Or worse, by check?? Most merchants have probably already realized that once their customer or client swipes their debit card and the transaction is processed, they are home free. Its guaranteed money! The funds appear in their own bank account electronically and they barely have to lift a finger. It time that merchants admit to the fact that they recieve a huge service for what they pay and stop promising the world to politicians and shareholders about passing their savings from interchange fees on to their customers. There is no guarantee or accountability for them to ensure that they will do that. This is an example of "good" intentions (if you can call it that) gone bad.

    7. Sandy, Richfield, UT says:

      So what else is new? The Dodd-Frank bill had 2300 pages that no one had time to read. Smells just like the Obamacare bill and it STINKS!

    8. whobodythere, downea says:

      Interesting implication out of Arvada, CO…that using a credit card implies a lack of fiscal responsibility..? Also of interest is that credit card companies have a label for folks who pay off their credit card balance each month (read…"free 28 day loan")

      that ironic term being "Freeloader". Hence those who use credit cards and all the

      "perks" (which are rapidly disappearing) are viewed both by society at large and credit card companies as "fiscally irresponsible freeloaders". Have we not reached a tipping point (toward a downtrend) with regard to reasonable thought and application of terminology and societal perception…"when right is wrong and wrong is right"…things that make you go ….hmmmm…????

    9. Pingback: How about a National Obamacare Waiver? | The Foundry

    10. Spiritof76, NH says:

      When can we expect the Republicans defund all the agencies or eliminate a single bill that will invalidate the Dodd-Frank criminal bill? I guess we will be waiting for ever as the Republicans are the otherside of the same counterfiet coin.

    11. Jim in Tampa says:

      You would not have these long bills if the lobbyists and the bank's lawyers didn't write them. Obviously the members of congress don't have enough sense to write these bills or felt more responsiblity toward the voters who elected them rather than to the banks who bought them.

      P.S. I belive the Heritage Foundation only promotes a conservative society.

    12. Madman says:

      The Republican House has the power to cut anything from the budget or add anything to the budget and there is nothing the Senate or Obama can do to stop them. If they wanted to cut the deficit completly from the budget or they could cut any government department completly from the budget ZERO them out.

      What are they waiting for?????

    13. Brad S., Detroit, MI says:

      I am with whobodythere. I use credit cards ALL the time. Pay at the pump is especially convenient on a cold January day. Between my job travel expenses and personal use, I probably charge in the neighborhood of $30K per year and receive reward points that I turn into "cash for Christmas" in December. We aren't necessarily "freeloaders" because credit card companies collect service fees wherever they are used – they just don't make as much money off of us by paying late fees and crazy high interest charges. Just make sure you pay it off every month and you make out in the end.

    14. Jacques Goyet, Detro says:

      All the bull about the history of swipe fee is just that bull. The swipe fee is just another (should be illegal) over charge by banks whoes unbelievable obscene profits are killing the middle class.

    15. Pingback: Morning Bell: How about a National Obamacare Waiver? « The perpetual view's Blog

    16. Bobbie says:

      Is bernanke English for builderberg?

    17. Marc Banka, Durham N says:

      How is it that the banks can cry "foul", and can't possible afford these changes when the execs rake in the salaries and bonuses, well into the millions, each?

      Just like the oil companies whinning that cutting our subsidies will squash their funds for research and exploration. Perhaps they could use some of their billions (quarterly) to improve their own business.

      Bottom line is you can't keep screwing the public using their money.

      Grabted, debit cards are better left as they are. I'm just so sick of both sides shafting the middle class, while telling us it's for our own good.

      That they fool enough people to get re-elected is another story.

    18. Dave says:

      The interchange fees represent a sizable chunk of profit for a bank, which is a for profit business. Interchange currently allow banks to provide services such as free debit cards, free checking accounts, and zero liability for fraud charges, just to name a few. Expect these services to now be things you pay for, unless you are a high-value customer with a lot of money in the bank. The main problem is that we are conditioned by banks to expect these services for free. It always amuses me to see people complain about a $10-$15 fee on a checking account with a debit card and online banking when they shovel out in excess of $100 a month for cable and internet. Mark my words, you won't see a reduction in the limit of purchases for most banks, you will see a small fee and increased liability for fraud as well in a reduction of the amount of proactive fraud detection. Remember, this part of the act was lobbied for by major retailers like Wal-Mart, who also have execs who rake in millions in salaries and bonuses. Most people think that the retailers lobbied for this in order to reduce the interchange fee "paid" by merchants to process your debit cards. That makes no sense, that fee is already passed onto you as the consumer by the prices of goods. The real reason: cards issued by retailers are exempt from the interchange limit. Welcome to Wal-Mart banking for the average Joe. Need to cash a check, get a money order, buy a rechargeable card? Welcome to Wal-Mart!

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.