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Banks battle interchange rules

By Marcie Geffner · Bankrate.com
Thursday, June 23, 2011
Posted: 11 am ET

The all-out war between banks and retailers over the new federal rules that will restrict so-called interchange fees might not be over quite yet.

That's because U.S. Sens. Jon Tester (D-Mont.) and Bob Corker (R-Tenn.) have introduced a bill that would delay the government's plan to "price-fix debit card swipe fees," to use Tester's characterization.

Interchange fees are triggered when a consumer uses a credit or debit card to pay for purchases. The new rules will cut these fees on debit cards from 1 percent to 2 percent of the transaction amount to more like 12 cents per swipe, with some exceptions.

The latest bill originally called for a 24-month delay, but Tester last month chopped that timeframe to 15 months, saying six would be used to study the issue, another six would be used to rewrite the rules and the final three would be used to implement the rules, as rewritten.

Tester argues that the new rules will hurt small community banks and credit unions, especially in rural parts of the country, such as much of his state. Some could be forced to close their doors, he believes.

"They will feel the pinch," he said in prepared remarks, "and they will lose because the government is going to set a price for doing business that does not cover their costs."

The new rules, set to take effect July 21, contain an exemption for banks and other financial institutions that have assets of less than $10 billion.

Tester says that won't work, and he quotes snippets of speeches to support his claim that all the top federal and state regulators of small banking institutions share his concerns.

"If this rule goes into effect, the consumers and businesses who rely on community banks and credit unions will pay the price, and we can bet that many retailers won’t be eager to pass the few pennies they save down to you," he warned.

The American Bankers Association supports this effort to delay the implementation of the rules, saying that they weren't fully studied and explored and that the small-bank exemption isn't adequate.

Follow me on Twitter: @marciegeff

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