Perhaps the most interesting comment letter the Federal Reserve received on Tuesday (the deadline for commenting on the Fed’s proposed rule fixing prices for debit-card interchange) was from the Independent Community Bankers of America. (Read letter) The most provocative feature of the Durbin Amendment (the provision of Dodd-Frank that requires the Fed to rule on the question) is an exemption for small banks — the Fed interchange price limits are supposed to apply only to banks with assets of at least $10 billion. So those banks were supposed to rejoice when the Fed proposed a hard cap of at most 12 cents per transaction, cutting revenue for debit transactions by more than 75 percent. In theory at least, the small banks would get to keep charging roughly 60 cents per transaction, giving them a major revenue advantage over large banks.
But instead of rejoicing, the ICBA on Tuesday filed a detailed comment criticizing the Fed’s rule. It turns out, the ICBA does not believe its members will get to charge four times the prices the big banks get to charge. Once the price big banks charge is cut to 12 cents, the major networks (for whom the big banks are the biggest customers) will have no incentive to maintain high-cost schedules that would make their cards unattractive to merchants. And merchants would be free to discriminate against any high-cost cards customers presented. The ICBA emphasizes rules in Dodd-Frank and in the recent Justice Department settlement with MasterCard and Visa, both of which broaden the ability of merchants to discriminate. In the end, because debit card transactions are more costly for small banks (many of which use external third-party processors), the ICBA argues that the rule actually will be more costly for its members than for large banks, exactly the opposite of what Congress required in the Durbin Amendment.
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