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Community banks could lose money and consumers could have to pay higher fees if the Federal Reserve implements its debit interchange proposed rule as is, FDIC Chairman Sheila Bair wrote Federal Reserve Chairman Ben Bernanke.
Bair recommended that the board use its authority to protect the small-issuer exemption created by Congress. She expressed concern that small financial institutions won’t get the benefits from the exemption because card networks won’t implement a two-tiered payment schedule.
Bair also suggested that the Fed should do more research on the incremental costs to small issuers and said the 12 cent proposed fee cap wouldn’t take into account all the costs.
She also recommended that the Fed adopt the alternative to require that a debit card could access at least one signature-based payment processing network and an unaffiliated PIN-based payment processing network.
In addition, Bair recommended that the Fed establish a fraud-related fee policy to promote innovation in fraud prevention.
Bair concluded that by making these changes the Fed could help “avoid unnecessary adverse consequences for consumers and small bank issuers,’’ and urged the central bank to “implement alternatives that would present the ;east operational challenges to community banks.’’
According to the proposed rule, the allowable costs for interchange would be limited to no more than the issuer's allowable costs divided by the number of electronic debit transactions on which the issuer received or charged an interchange transaction fee in the calendar year. Or the issuer could receive debit interchange capped at 12 cents per transaction.
Under the provisions of Dodd-Frank, the Fed must approve a final rule by April 21 and in effect by July 21.