Cap on 'swipe' fees may hurt minorities, NAACP says
(Bloomberg) -- Congress should review proposed caps on debit-card transaction fees to ensure they don't force low-income minorities out of the banking system, the NAACP said in a letter to House Speaker John Boehner.
The letter follows assertions by the banking industry that the caps would force people with low incomes to drop checking accounts because of new fees that financial institutions would impose in response.
"This rule should be thoroughly and expeditiously reviewed prior to implementation, allowing a full and appropriate impact study to be performed to ensure that it will not raise fees or otherwise harm at-risk communities, including communities of color," Hilary O. Shelton, vice president for advocacy and policy at the National Association for the Advancement of Colored People, said in the March 7 letter.
The Fed in December proposed capping debit-card interchange, or "swipe" fees, charged to merchants at 12 cents a transaction, replacing a formula that averages about 1 percent of the purchase price. The Dodd-Frank Act, which requires the fees to be "reasonable and proportional" to the processing costs, may erase as much as $12 billion in annual revenue for U.S. banks.
House and Senate lawmakers are meeting to draft legislation that would delay the rules, which must be completed by April 21 and take effect by July 21, lawmakers and aides have said.
The caps proposed by Senator Richard Durbin, an Illinois Democrat, may benefit the biggest retailers, who said they would pass savings to consumers. The Fed proposal set off a lobbying fight on Capitol Hill between the financial-services industry and retailers such as Wal-Mart Stores Inc., based in Bentonville, Arkansas, and Minneapolis-based Target Corp. Wayzata-based TCF Financial has sued the Federal Reserve to block implementation of the caps.
Visa Inc. and MasterCard Inc., the world's biggest payment networks, set interchange fees and pass the money to card-issuing banks. Shares of both firms plunged more than 10 percent on Dec. 16 after the Fed released its proposal amid investor concern that the caps would damage their business model.
U.S. bank regulators, including Fed Chairman Ben S. Bernanke, have bolstered opponents of the proposal by questioning the effectiveness of an exemption for banks and credit unions with less than $10 billion in assets. The Fed proposal is "unnecessarily narrow" and may have long-term "safety and soundness consequences," Acting Comptroller of the Currency John Walsh said in a March 4 letter to the Fed.
Walsh's statements "reflect either a misunderstanding or a misrepresentation of the interchange-reform law that Congress passed," Durbin responded in a March 9 letter. "Unregulated fee-fixing by Visa on behalf of its largest member banks is unsustainable for consumers, merchants and the American economy."
Lenders of all sizes, including those that are exempt, said the caps will cause them to follow the lead of Bank of America. The Charlotte, North Carolina-based bank, the biggest U.S. debit-card issuer, said in January that it will begin charging retail customers checking-account fees unless they maintain minimum balances, make regular deposits, use credit cards or take advantage of online services.
Consumer groups, while supporting the rule's intent, said they're worried about the consequences for low-income borrowers.
"We would be concerned with a rule that would inadvertently reduce access to debit cards and other basic banking services to low- and moderate-income borrowers," John Taylor, chief executive officer of the National Community Reinvestment Coalition, said in a Feb. 22 comment letter to the Fed.
About 8 percent of U.S. households don't have bank accounts, and new regulations may cause that figure to rise, Citigroup Inc. Chief Executive Officer Vikram Pandit said in the New York-based bank's annual report, released yesterday.
"The rules that limit interchange and overdraft fees will change banking," Pandit said in a Feb. 17 speech in Chicago. "We could be heading for an environment in which less credit is available, access to financial services contracts, and the costs of such services rise. All of that will have an impact on financial inclusion."