Bernanke: Debit Card Fee Rule May Result In Some Small Banks Failing

Wall Street Journal

by Victoria McGrane and Luca DiLeo

WASHINGTON -(Dow Jones)- Federal Reserve Chairman Ben Bernanke said he remains unsure whether the central bank can craft a new rule to shield small banks from new debit-fee limits, a statement that could increase pressure on lawmakers to delay the new rule.

In response to questions during a Senate hearing, Bernanke said "there are good reasons to be concerned about" the exemption for small banks failing to work in practice.

"It's going to affect revenue of small issuers. And it could result in some smaller banks being less profitable or even failing," Bernanke said.

Bernanke made the comments under questioning by Sen. Jon Tester (D., Mont.), a leading critic of the new debit-card rule that was included in last year's Dodd- Frank financial-overhaul law. The law requires the Fed to issue a rule capping the amount of fees banks can charge merchants each time a customer swipes a debit card to pay for a purchase.

Lawmakers included an exemption from the fee-limits for small banks and credit unions, but the institutions themselves believe market forces will render the carve-out useless and force them to accept the same lower swipe fee as their larger competitors.

The Fed released a draft rule in December that capped these so-called "swipe fees" at 12 cents per transaction, down from the current average of 44 cents. The draft rule sparked an intense lobbying effort by community banks and credit unions, along with big banks, on Capitol Hill urging lawmakers to kill the provision requiring the rule.

Tester has introduce legislation that would delay the start-date of the Fed rule for further study. Tester said in an interview that he believes he has the 60 votes needed to pass the legislation through the Senate but it remains uncertain if he can find a legislative vehicle to which to attach the measure.