Survey: Fed Debit Card Rule Will Harm Community Bank Customers

Washington, D.C. (February 14, 2011)-People who use debit cards issued by community banks will face higher costs and increased restrictions if a proposed Federal Reserve regulation goes into effect, according to a new survey of members of the Independent Community Bankers of America (ICBA).

This is the result of 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, which will make it harder for community-based institutions to compete with the largest institutions and to provide their customers with the products and services they expect.  Rather than helping consumers, the new interchange pricing system will shift merchants’ debit card acceptance fees to consumers in the form of additional charges for banking services. Meanwhile, merchants will see $12 billion in windfall profits if this new rule is implemented.

“Debit cards have become a way of life for most Americans and have become commonplace because they are so much more convenient than carrying cash or a checkbook. Now more than ever, Main Street banking customers expect to have a debit card when they have a checking account,” said Camden R. Fine, ICBA president and CEO.  “This survey confirms what we community bankers already knew-that implementing this deeply flawed proposed rule will hurt our Main Street customers because merchant costs associated with debit card acceptance will shift to consumers and small businesses.”  

The ICBA survey of community banks found that:


  • 93 percent 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 percent say they will have to implement annual or monthly charges for use of a debit card – 61 percent say they will have to impose a minimum balance requirement


    – 50 percent say they will have to impose a charge each time a customer uses their debit card 


    – 65 percent say they will have to raise their qualification standards, either by strengthening debit card qualification thresholds or closing higher-risk transaction accounts 


    – Nearly 20 percent say they will have to eliminate jobs or halt plans to open new bank branches



  • Free checking accounts will be a thing of the past. 72 percent 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 percent of community banks say they will have to charge for services that are now free, such as online or mobile banking.

  • Nearly half of community banks say the rule will harm their customers because it will make it difficult for them to continue offering competitive rates on deposits and loans.


Interchange fees, set by card networks, are paid by merchants to card-issuing banks and credit unions, allowing everyone to benefit from debit card transactions. Consumers get convenience and security. Merchants receive more efficient, guaranteed payments and higher counter sales. Banks and credit unions are compensated for processing those payments, assuming risk and guaranteeing the transaction and for maintaining highly complex, well-functioning payment systems. 

However, the so called “carve out” for institutions with less than $10 billion in assets included in the Durbin amendment simply won’t work primarily because merchants will now control the entire transaction process, driving customers to cheaper price-controlled cards instead of cards issued by their local community bank.

Also, small businesses in cities and towns throughout America benefit directly from their community banks’ ability to offer capital at very affordable rates.  However, if community banks assume increased operating expenses or are forced to close their doors because they are unable to compete, this would have a ripple effect throughout the community, and ultimately the national economy, by hindering much-needed economic stability and growth.

“Once again, community bankers must stand up for Main Street America and voice what is best for our customers and our communities-enough is enough,” Fine said.  “We urge the Fed to reconsider this misguided rule.”



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