Washington, D.C. — America’s banks and credit unions have urged the Federal Reserve to rescind its proposal to update Regulation II (Reg II) in a comment letter submitted today. The joint letter was submitted by the Bank Policy Institute, American Bankers Association, America’s Credit Unions, Consumer Bankers Association, Independent Community Bankers of America, Electronic Payments Coalition, Mid-Size Bank Coalition of America, National Bankers Association and The Clearing House Association.
The associations argue that the proposal would harm consumers, banks and credit unions. They contend it would violate the law by prohibiting banks from recovering the costs they incur in providing affordable, safe debit card programs and a reasonable return on that business. The proposal is seen as benefiting large retailers like Walmart and Amazon at the expense of consumers and financial institutions of all sizes.
The letter states: “[T]he Associations urge the Board to withdraw its proposed rule. The proposed rule would further lower the existing deficient price cap on debit card interchange fees and thereby amplify the damage already done by Regulation II as promulgated in 2011...and degrading the ability of banks and credit unions (including smaller, exempt issuers) to serve their communities and to invest in payment system innovation.”
Retailers pay a small transaction cost known as an interchange fee when a consumer uses their debit card to make a purchase. The Federal Reserve’s proposal would further reduce this legal limit under Regulation II. This reduction restricts resources available to banks for facilitating debit card transactions, covering fraud losses and funding innovation in payment systems.
The associations highlight several problems with the proposal:
- Consumers, particularly low-income and minority consumers would be harmed as interchange revenue helps fund low- or no-cost deposit account programs.
- Resources used to mitigate fraud would be restricted.
- Small banks and credit unions would bear higher costs due to their smaller programs.
- Large retailers would profit while continuing to charge consumers high prices.
- The Federal Reserve would violate the Durbin Amendment and the Constitution.
- The Board would finalize a rule not grounded in fact.
To access a copy of the letter, please click here.