Fed closes comment period on debit-card rules as debate rages on

The major banking associations, including the American Bankers Association, the Financial Services Roundtable and the Consumer Bankers Association, all signed on to a 72-page letter — the first time all the major groups have been on the same page.

In it, the groups call for a complete overhaul of the proposed rule that the Fed put out in December, which would drastically cut the amount banks can charge each time a debit card is swiped.

The proposal, backed primarily by Sen. Dick Durbin (D-Ill.), was a late addition in the Dodd-Frank financial reform law, and requires the Fed to impose limits on the fees.

In their letter, the banking groups go on to say the Fed’s proposal carries with it “profound adverse consequences” for consumers, banks and the U.S. economy as a whole. Banking groups have maintained that they will be forced to raise fees elsewhere to make up for the revenue hit, while merchants pocket the savings.

The Independent Community Bankers of America chimed in with their own letter, calling on the Fed to scrap its “egregious” proposed rule.

While getting legislation that would repeal the Durbin amendment is a tall task, some lobbyists are trying to convince lawmakers to push a proposal stalling the rulemaking process. Although Dodd-Frank stipulates the rules must be finalized by April, banking advocates contend the matter requires further study by the Fed, and have called for a two-year break to allow for such analysis.

Meanwhile, merchants are tugging the Fed in the other direction. Arguing that the reduced fees will allow retailers to pass those savings on to consumers, merchant groups are pushing the central bank to finalize the rules as soon as possible.

The Merchants Payments Coalition said Tuesday that any delay in implementing the rules would cost merchants $1 billion a month in fees, which “means killing a potential 95,000 new jobs that people need right now.”

In fact, retailers are arguing the Fed’s rule doesn’t go far enough. The Fed currently has proposed a seven to 12 cent fee limit for every debit-card transaction. But the National Retail Foundation told the Fed that limit should be even lower, to bring the fees closer to the actual cost of the transaction. In its letter, the group cited studies that found banks spent anywhere between four cents and less than one cent per transaction processing debit-card swipes.