MADISON, Wis. (2/16/11)--If a proposed Federal Reserve regulation goes into effect, people who use debit cards issued by community banks will have higher costs and increased restrictions, according to a new survey by community bankers. The regulation also would impact credit unions. Government price-fixing as proposed in the Federal Reserve rule that would implement the Durbin amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act will cause the higher costs and restrictions, the Independent Community Bankers of America (ICBA) said (ENP Newswire
Feb. 15). Merchants will see $12 billion in windfall profits if this new rule is implemented, the news service said. Key findings in the ICBA survey:
* 93% of community banks say they will be required to charge their customers for services that are currently offered for free because of the new law and the Federal Reserve rule; * 72% say they will have to implement annual or monthly charges for use of a debit card; * 61% say they will have to impose a minimum balance requirement; * 50% say they will have to impose a charge each time customers use their debit card; * 65% say they will have to raise their qualification standards, either by strengthening debit card qualification thresholds or closing higher-risk transaction accounts; * Nearly 20% say they will have to eliminate jobs or halt plans to open new bank branches; * 72% of community banks say they will no longer be able to afford free checking accounts because of the new law and the Federal Reserve rule; * Nearly 70% say they will have to charge for services that are now free, such as online or mobile banking; and * Nearly half say the rule will harm their customers because it will make it difficult for them to continue offering competitive rates on deposits and loans.
Credit Union National Association President/CEO Bill Cheney recently urged the Fed to take the time to study the new interchange law, rather than forging ahead with new rules, so everyone wins, including consumers, merchants and financial institutions. The Fed should be given time to consider all interchange-related costs and set a reasonable interchange rate to avoid unintended consequences such as elimination of debit card programs by credit unions, he said. Credit unions also may be forced to impose new fees on members’ debit accounts to keep their card programs afloat, he said. In addition, he challenged retailer claims that any savings gained from the interchange fee cap would be passed on to consumers. The Fed proposal will be open for comment until Feb. 22. The U.S House Financial Institutions and Consumer Credit subcommittee has a hearing scheduled Thursday on interchange.