Debit interchange proposal will negatively impact consumers, should be withdrawn

The Federal Reserve’s debit interchange proposal would bring real-world harm to consumers and card issuers of all sizes and should be withdrawn, America’s Credit Unions wrote the Fed in comments filed Friday.

The proposal would adjust all three components of Regulation II’s interchange fee cap and calculate it using information weighted towards the cost experience of the largest, highest volume debit card issuers.

America’s Credit Unions called for the Fed to withdraw the proposal because:

  • Reducing the fee cap and by extension debit interchange revenue will harm credit unions and members while granting a windfall to merchants;
  • The Electronic Fund Transfer Act (EFTA) requires the Federal Reserve to consider the impact of its regulations on consumers, and research shows that consumers were harmed when the debit interchange fee cap was introduced as costs were passed on by issuers;
  • The Fed has not adequately considered the impact of its proposal on exempt issuers, as its own data—along with research examining the initial effects of the 2011 fee cap—shows smaller, exempt issuers were harmed;
  • The transaction-weighted methodology is flawed and results in cost recovery assumptions that skew toward the cost experience of the largest issuers, while disregarding the costs of smaller, lower volume issuers; and
  • The Board’s proposal arbitrarily excludes certain categories of specific debit transaction costs, resulting in an underestimate of the total cost of running debit card programs.

The comments included an independent economic analysis that showed the proposal fails to address market concentration, cost structure, and evolving payment trends, leading to many unaddressed concerns, including higher fees and reduced services for consumers.

America’s Credit Unions also submitted a joint comment letter with other financial services trade organizations highlighting the many negative impacts of the proposal.

America’s Credit Unions conducted research, collected data, and met with several members of the Fed’s Board of Governors (including Chairman Jerome Powell and Vice Chair Philip Jefferson) during the comment period to share industry concerns.

The organization supports the Secure Payments Act (H.R. 7531), which would halt implementation of the rule until its impact can be studied and the industry helped coordinate a bipartisan letter from legislators expressing concerns effects on low-income consumers.

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