Durbin to Illinois Bankers: Small Banks will Benefit from Interchange Reform
[WASHINGTON, D.C.] – Assistant Senate Majority Leader Dick Durbin (D-IL) sent a letter to three Illinois banking associations today, highlighting a recent announcement that Visa would establish a two-tiered interchange fee system - one for large institutions and one for small institutions. Visa’s announcement means that small banks and credit unions – which were given an exemption from new interchange regulation – will benefit from changes to the interchange system.
The letter, addressed to the Illinois Bankers Association, the Illinois Credit Union League and the Community Bankers Association of Illinois, urged the groups to share with their membership the benefits of the new law.
“I write to bring to your attention a recent announcement by Visa that should be of significant interest to your members. On January 7, according to the American Banker newspaper, Visa confirmed that it would respond to recently-enacted interchange legislation by establishing separate interchange rate schedules for large regulated banks and for smaller institutions that are exempt from regulation.
Visa’s recent announcement confirms what I have consistently argued: that small banks and credit unions will not be hurt by this regulation and will in fact see benefits from it. As the Federal Reserve moves toward final implementation of the new interchange law in July, I urge you to share with your Illinois members information about the benefits of interchange reform for small issuers,” Durbin wrote.
Last month, the Federal Reserve released proposed regulations of debit card interchange fees. The Fed was directed to establish standards to ensure that debit interchange fees are “reasonable and proportional” to the real cost of processing a debit card transaction by a bipartisan amendment Durbin included in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Final regulations will be released in April.
A copy of today’s letter was also shared with the American Bankers Association, Credit Union National Association, and Independent Community Bankers of America. Durbin also sent a similar letter to his colleagues in the Senate highlighting the benefits of the new law to small banks and credit unions.
More information about Durbin’s interchange law can be found here. A copy of today’s letter is pasted.
January 18, 2011
President and CEO
Illinois Bankers Association
President and CEO
Illinois Credit Union League
Community Bankers Association of Illinois
Dear Ms. Koch, Mr. Plauda and Mr. Wingert,
I write to bring to your attention a recent announcement by Visa that should be of significant interest to your members. On January 7, according to the American Banker newspaper, Visa confirmed that it would respond to recently-enacted interchange legislation by establishing separate interchange rate schedules for large regulated banks and for smaller institutions that are exempt from regulation. According to analysts cited by the American Banker, this development “will put community banks and credit unions at an advantage over larger institutions.” I urge you to inform Illinois’ banks and credit unions about the competitive opportunities this announcement represents.
As you know, last year I offered an amendment to the Wall Street reform bill that sought to bring reasonable regulation to the debit interchange system while preserving the ability of small banks to compete in the debit card market. This amendment was enacted into law last July.
A key provision of this amendment sought to rein in the current price-fixing scheme that has been established between the banks that issue debit cards and the card network giants. The amendment said that if the big banks are going to let card networks like Visa fix fees on their behalf, the Federal Reserve should regulate those fees to ensure that they are reasonable and proportional to the actual cost of processing the transaction.
In crafting this amendment, I took great pains to protect the ability of smaller banks and credit unions to continue to issue debit cards. The amendment exempted from fee regulation all debit cards issued by banks and credit unions with assets of less than $10 billion dollars- over 99 percent of all banks and credit unions in America. This means that these smaller exempted banks can continue to receive the same high interchange fee rates that networks like Visa set for them today.
The card network giants and Washington-based financial trade associations have criticized the amendment, claiming that networks like Visa would undermine the small bank exemption by voluntarily cutting the interchange rates that small banks receive to match the regulated big bank rates. This claim continued even when it was pointed out that Visa would be acting against its own economic interests if it did so.
Visa’s recent announcement confirms what I have consistently argued: that small banks and credit unions will not be hurt by this regulation and will in fact see benefits from it. The January 7 American Banker article cites a payments consultant who said that the industry prediction that the small bank exemption would fail “was simply intended to scare credit unions and small banks to keep them lobbying.”
It is likely that some Washington-based trade associations will continue to use scare tactics and misrepresentations to argue against interchange reform. These associations have expended so much time and money lobbying against reform over the past year that unfortunately I do not expect them to ever reconsider their position. It is for this reason that I write to you directly, and I would be happy to continue a direct dialogue with you to put to rest any other concerns you or your members may have about the new law and the rules that the Federal Reserve is currently preparing to implement it.
As the Federal Reserve moves toward final implementation of the new interchange law in July, I urge you to share with your Illinois members information about the benefits of interchange reform for small issuers. Thank you for your consideration and I look forward to continuing to work with you.
Richard J. Durbin
United States Senator
American Bankers Association
Credit Union National Association
Independent Community Bankers of America
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