Bernanke: Fed authority limited on interchange

From the National Association of Federal Credit Unions

March 2, 2011 – Federal Reserve Chairman Ben Bernanke told Congress Tuesday that the central bank does not have the authority to shield credit unions and community banks from costs associated with the Dodd-Frank law’s interchange provision outside the $10 billion-in-assets exemption already in place.

Speaking before the Senate Banking Committee to offer the Fed’s quarterly economic report to Congress, Bernanke’s comments about the interchange provision didn’t come until late into the question-and-answer portion of his testimony.

Sen. Herb Kohl, D-Wis., asked Bernanke if the Fed could ensure that financial institutions under the $10 billion asset threshold are protected during the central bank’s rule-writing process, noting that credit unions and community banks will still face a heavy burden of additional costs.

Bernanke said the central bank can make no such promise, noting that, in passing the law, Congress decided not to exempt these institutions from the network exclusivity provision, which requires financial institutions to have at least two unaffiliated networks for debit signature. He added that there are some aspects of the rule that are outside the Fed’s control. Bernanke conceded that the provision could end up driving down interchange revenue as a result of market forces.

On the economic front, Bernanke said the Fed is mindful of recent energy and commodity price increases, but reiterated that there are no imminent plans to change the central bank’s policy. The recent uptick in oil prices is partly temporary, he said, and the impact on U.S. economic growth will be limited. He did concede, however, that a sustained situation of rising energy prices would hurt the economic recovery process.

NAFCU is continuing to make the case to Congress that the interchange provision would be detrimental to credit unions and the members they serve.

John Buckley, president and CEO of Gerber FCU of Fremont, Mich., will be testifying on behalf of the association at today’s hearing on the impact of the Dodd-Frank Act on small institutions held by the House Financial Institutions Subcommittee. Buckley will present NAFCU’s concerns about the financial regulatory reform law, including the future costs and regulatory burden posed by oversight of the Consumer Financial Protection Bureau as well as the law’s provisions on debit interchange fees.