Tags: Big | Changes | Fed | Debit | Card | Rule | Unlikely

Big Changes to Fed Debit Card Rule Seen Unlikely

Wednesday, 29 Jun 2011 07:51 AM

Banks are hoping to win at least a small reprieve from the Federal Reserve on Wednesday when the central bank releases a final proposal cracking down on the fee banks charge retailers when a debit card is used.

Bank officials are not expecting the Fed to back off much from its December proposal, but even boosting the fee cap by a few cents would ease the blow.

In December the Fed proposed capping the fees at about 12 cents per transaction — a 75 percent cut from the 2009 average of 44 cents, according to the central bank.

The lobbying battle has been vigorous with retailers charging the current system is a boon to big banks like Bank of America and Citigroup.

Banks push back by arguing the crackdown will pad the profits of retail giants like Wal-Mart and Target with customers seeing none of the savings.

Beyond the transaction cap, the Fed is due to decide how it will enforce a requirement aimed at making the card network market more competitive and whether it will attempt to make an exemption to the fee cap for small banks more explicit.

The changes were to have gone into effect July 21 but the Fed is expected to find a way to give banks more time to be in compliance with debit fee cap.

The Dodd-Frank law requires the Fed to prevent banks and card companies, like Visa and MasterCard, from restricting how many networks can be used to process a debit card transaction.

Banks and card networks are hoping the Fed will choose the simplest option it laid out in December — requiring a debit card to be carried over only two unaffiliated networks.

Small banks, those with less than $10 billion in assets, are exempt from the debit fee cap but they have argued they don't believe it will work in practice.

Community banks are hoping the Fed will issue language laying out how card networks will make the exemption work, said Viveca Ware, a senior vice president at the Independent Community Bankers of America.

© 2015 Thomson/Reuters. All rights reserved.

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