ABA Urges Fed to Withdraw Proposed Debit Interchange Fee Cap

The American Bankers Association (ABA) said the proposed amendments to Regulation II that would cap debit card interchange fees are “fundamentally flawed and should not be finalized.”

In a Thursday (Dec. 12) letter addressed to Federal Reserve Board Chair Jerome H. Powell, ABA Senior Vice President and Executive Director of the Card Policy Council Tom Rosenkoetter wrote the proposed amendments set the cap arbitrarily and are based on 2021 survey data that was skewed by the effects of the pandemic.

Rosenkoetter added that nearly 80% of the comment letters submitted to the Fed oppose the implementation of the proposed amendments.

Among the concerns raised in the comment letters are that the proposed amendments don’taccount for allowable costs and the ability to recover costs, harm consumers by reducing access to affordable banking services, and don’t account for their impact on community financial institutions, according to the letter.

“ABA believes the proposed amendments will reduce the availability and affordability of Bank On accounts for low- and moderate-income Americans, and the comment file demonstrates that our view is shared by civil rights leaders who are working to close the unbanked gap, among others,” Rosenkoetter wrote in the letter.

Rosenkoetter concluded the letter by urging the Fed to withdraw the proposed amendments.

The Federal Reserve’s proposal to lower debit interchange fee caps drew about 2,500 responses from trade organizations representing merchants and financial services firms, from bank executives and from unaffiliated individuals, PYMNTS reported in May.

Under the terms of the proposal unveiled in October 2023, the Fed would lower the interchange fees that are charged to merchants to 14.4 cents, where that rate had been 21 cents. In addition, the caps would be reviewed every two years. The revised fee structure would cover financial institutions with at least $10 billion in assets.

When the Fed voted to move forward with the commentary process at that time, Vice Chair for Supervision Michael S. Barr said that “debit cards accounted for over half of all non-cash payments” and that the fed had been tasked with examining whether the fees assessed on debit card transactions to merchant banks are “reasonable and proportional to the costs incurred by the issuer.”