Durbin: Visa’s new system good sign for interchange reform

Sen. Dick Durbin (D-Ill.) is swinging back at banks that argued his support for new limits on debit card fees would hurt all financial institutions, after a leading card network announced it would adopt a two-tiered fee structure for large and small banks.

“It’s time to move past the misrepresentations and scare tactics and to recognize the strong pro-consumer and pro-competitive benefits of interchange reform,” he said in a statement Saturday.

Visa, one of the primary debit card networks alongside MasterCard, announced late Friday that in response to new proposed rules limiting how much banks can charge stores for using their debit cards, it would be establishing two tiers of fees, one for small banks and another for large.

The so-called “Durbin amendment,” which was a late inclusion in the Dodd-Frank Wall Street reform law, seeks to limit “interchange” or swipe fees by requiring the Federal Reserve to adopt rules that ensure the fees are “reasonable and proportional” to the cost of the transaction. Retailers argue that the fees have been steadily rising to pad bank profits, rather than cover the costs of the debit card system. Card networks like Visa and MasterCard assess the fee to retailers, and then pass them on to banks.

The separate tiers are an attempt to implement a carveout in that amendment, which stated that financial institutions with fewer than $10 billion in assets would not be subject to the new limits. Under the new system, one tier would charge the regulated fees for large banks, while the other would still assess unregulated fees for smaller banks.

“Visa’s announcement confirms what I have long argued: that small banks and credit unions will not be hurt by this regulation and will in fact see benefits from it,” Durbin said.

However, banking groups, including ones representing smaller institutions, have argued that even with the exemption, small banks could suffer under the amendment. If larger banks are forced to charge lower fees for their debit cards, smaller banks would have to voluntarily lower their fees to comparable levels to stay competitive.

“The proposed regulation will not translate into any benefits for consumers, nor will it help credit unions with less than $10 billion in assets,” said Fred Becker, president of the National Association of Federal Credit Unions, on Jan. 5. “Despite their exempt status under the legislation, they will be negatively impacted by the new debit swipe fee limit.”

The proposal the Fed unveiled in December would dramatically slash fees. Under the proposal, scheduled to be finalized in April, banks could charge retailers seven to twelve cents each time a debit card is swiped. That’s a 73 percent drop from the current average fee of 44 cents, according to the Fed.

This story updated Jan. 10 at 12:03 pm.