Debit Reform Benefits Community Banks, Credit Unions

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Debit Reform Benefits Community Banks, Credit Unions


WASHINGTON, D.C. -- Nearly one year after debit swipe fee reform was enacted, a recent government report has found that community banks and credit unions have come out winners. The reform took effect on Oct. 1, 2011.

Under the new structure, banks with less than $10 billion in assets are exempt from debit swipe reform that limits the fees charged by the big banks for each debit transaction. The U.S. Government Accountability Office (GAO) found that approximately 99 percent of all banks in the United States had less than $10 billion in assets in 2011 and that 14,300 banks, credit unions, savings and loans, and savings banks qualified for the debit swipe fee exemption last year.

During intense lobbying efforts which pitted the retail community against so-called big banks and credit card companies during the spring of 2011, many on the side of the financial institutions argued that the reform would actually hurt small banks and credit unions, as CSNews Onlinepreviously reported. However the new report seems to shoot down that argument.

"This report should lay to rest once and for all the myth that debit swipe reform is harming the majority of American banks," said Doug Kantor, counsel to the Merchants Payments Coalition. "Debit swipe reform is working for community banks and credit unions, just like it's working for merchants and consumers across the country. The only ones crying foul are the big banks who are no longer reaping windfall profits from a broken system."

According to the group, key findings of the GAO report include:

  • "Initial data collected by the Federal Reserve indicate that card networks largely have adopted a two-tiered interchange fee structure after the implementation [of the debit swipe fee reforms] to the benefit of exempt issuers."
  • Swipe fees received by exempt banks "increased, in aggregate, on a quarterly basis after the [swipe fee] rule became effective."
  • The aggregate interchange fee income reported quarterly by these [exempt] banks from the second quarter of 2011 through the first quarter of 2012 was about $532 million, $547 million, $575 million, and $585 million, respectively, from the second quarter of 2011 through the first quarter of 2012." This represents a consistent increase over each quarter with a total increase of $53 million over that time period.
  • "Unlike the large banks, community banks and credit unions generally have not, on average, experienced a significant decline in their debit interchange fees as a result of the Federal Reserve's implementation of [the debit interchange fee provision of the Dodd-Frank Act]."

The GAO also said that the average debit swipe fee received by banks exempt from the reforms was 43 cents in the fourth quarter of 2011, compared to 24 cents for the big banks.

"One year after debit swipe reform was implemented, there is more competition in the payment processing system and lower swipe fees are helping consumers save money as merchants offset rising costs of things like gas and food and keep prices down. That's good news for businesses, consumers and our economy," Kantor added.