March 29, 2011

Debit-card rule will miss April 21

March 30, 2011 – Federal Reserve Chairman Ben Bernanke told key lawmakers Tuesday that the Fed will not complete its final debit interchange fee-cap rule by April 21, but he said the Fed does plan to have all required rules in place for implementation by July 21.

Bernanke reported on the slow progress of the final rule in letters Tuesday to Senate Banking Chairman Tim Johnson, D-S.D., and Ranking Member Richard Shelby, R-Ala., and House Financial Services Chairman Spencer Bachus, R-Ala., and Ranking Member Barney Frank, D-Mass.

"Because of the volume of comments and the complexity of the issues raised in those comments, . . . we have concluded that we will be unable to meet the Act's directive that the Board issue final interchange fee standards by April 21," the Fed chairman wrote.

In the letters, Bernanke said the Fed has received more than 11,000 responses to its proposed rule for implementing the debit interchange provisions of the Dodd-Frank Act. These include standards for the assessment of a "reasonable, proportional" per-transaction debit interchange fee, prohibitions on network exclusivity arrangements and restrictions on merchant routing.

The law gives the Fed until April 21 to set the final rule on fee restrictions; the rest must be ready before July 21.

The delay is not a permanent reprieve, Bernanke noted. "We recognize that the Act's provisions limiting interchange fees become effective by their terms on July 21 even without Board regulations," he wrote, "and we are committed to completing the rulemaking for that provision in advance of that date. We are also committed to meeting the Act's directive that we issue final rules regarding network exclusivity and routing by July 21."

NAFCU, other financial industry trades, federal regulators and lawmakers from both sides of the aisle have criticized the Fed's proposed, 12-cent cap on debit interchange fees, which are expected to cost the industry about $12 billion and threaten the future of small institutions' card programs.

S. 575, introduced by Sen. Jon Tester, D-Mont., and Rep. 1081, introduced by Rep. Shelley Moore Capito, R-W.Va., would delay the Fed's final rule for two years and require a study of its impact on consumers, financial institutions, card issuers and merchants.