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WASHINGTON, D.C. -- With the clock ticking down to the July 21 implementation date for new swipe fee regulations, the banking industry is asking for more time.
In a letter sent yesterday to the Federal Reserve Board and Chairman Ben Bernanke, American Bankers Association President and CEO Frank Keating urged the board to extend implementation on any final reform by three months, so the industry has time to get in line.
"The rule proposed by the board will have enormous impact on the existing payments system infrastructure, which, if done in haste, could have sizeable negative impacts for individuals, consumers and our broader economy," he said. "We urge the board to use its existing authority to provide banks and payment networks with a reasonable chance to meet their obligations under the law. That period should be no less than the three-month window envisioned by the statute as enacted."
In addition to time, Keating also asked the Fed to make revisions to the proposed rules governing debit card fees. With implementation slated for one month from today, the Fed is expected to vote soon on its proposal to cap those fees at 12 cents a transaction.
Keating explained that failure to make revisions to the rule "will have dire consequences," including higher consumer costs for banking products, reductions in bank capital leading to reduced lending capacity, increased failures of community banks and many low- and moderate-income customers being driven out of the banking system.
“This will result in irreversible harm to local communities and the banks that serve them,” Keating said in his letter.
Pointing to a close vote on whether to delay any reform for at least six months in the U.S. Senate – the measure only received 54 of the necessary 60 votes to pass -- Keating added that "it is clear the majority of the world's greatest deliberative body has sent a very strong message of concern over the approach taken by the board in this rule."
One issue of concern for the banking industry is the cost of maintaining the debit card transaction, which Keating contends the Fed has not fully taken into account as a result of its "narrow interpretation of the statutory language."
"Such an interpretation excludes, among other elements, an appropriate allocation of fixed and overhead costs, as well as such elements as fraud losses, network fees applicable to individual transactions, and an appropriate allocation of customer service costs," he said. "We strongly believe that such costs need to be included in any cost calculation under existing law."
Fraud prevention costs are another sticking point for the banks. "It is imperative that adequate allowances for fraud prevention costs be included in any determination of allowable debit costs under the rule -- to both compensate institutions for such costs and incentivize investments in efforts that protect consumers, enhance security and maintain market confidence in the payments system," Keating said.