Sens. Jon Tester (D-Mont.) and Bob Corker (R-Tenn.) offered an amendment to the Economic Development Reauthorization bill to delay by 15 months the implementation of the Federal Reserve’s rule regulating debit interchange fees and the vote this afternoon was a close one. They needed 60 votes to avoid a Senate filibuster but only garnered 54 votes.
In a mega lobbying effort pitting mega retailers against mega banks, the mega retailers won the day and the amendment was defeated. The amendment had called for a six-month study by regulators to consider the fixed and incremental costs to the financial institutions of the new rules, whether the rules will adversely affect consumers, and whether the small issuer exemption is feasible.
So what happens now? The Fed issued a draft rule in December that is still being debated. The final rule is supposed to take effect on July 21.
At the Electronic Transactions Association (ETA) conference back in early May, Senator Dodd in his keynote address said he predicted that the Interchange regulation would be implemented but at a higher price than what’s been originally proposed.
According to the proposed rule as it stands now, the allowable costs for Interchange a debit card issuer could receive would be capped at 12 cents per transaction. This is well below actual costs, including the one great unknown, fraud losses. And 12 cents a transaction just isn’t enough to pay for risk management here in the U.S. So under the current proposed price cap, if not revised to take risk management costs into consideration, merchants could expect to see more declined cards at the point of sale (resulting in lost sales) and fewer debit cards issued in favor of more expensive types of card products.
While we wait for final rules and implementation, small and midsized merchants who have not done so already should continue to shop for merchant Interchange rate quotes and move to month-to-month agreements providing direct Interchange pass through. This will be important to take advantage of government mandates that result in lower debit Interchange rates.