NASCUS and State Bank Regulators Support Delayed Implementation of Interchange Fee Rule

May 12, 2011 - NASCUS and the Conference of State Bank Supervisors (CSBS) have issued a joint letter to Congress in support of legislation that would delay implementation of the interchange fee provisions of the Dodd-Frank Wall Street and Consumer Reform Act.

In the letter, NASCUS and state bank regulators expressed concerns about the potential safety and soundness implications associated with the rule, as well as the economic impact. As the majority of state-chartered credit unions and community banks have less than $10 billion in assets, state regulators believe the rule warrants additional study of the exemptions for these small issuers, and therefore, support postponement of implementation to provide the additional time necessary for study.

“If economic pressures force small debit card issuers to operate at a 12 cent interchange fee, it is possible that many banks and credit unions will stop issuing cards because their costs do not utilize the same economies of scale as larger financial institutions,” stated the letter. “This scenario raises safety and soundness concerns as a large revenue stream will be ceased, and will also incentivize further consolidation among debit card issuers and potentially drive bank customers and credit union members to alternative products outside of the banking system.”

In addition, state regulators are concerned about the timing of the rule, as community banks and credit unions continue to maneuver an extremely challenging landscape. The uncertainty about the impact of Dodd-Frank, coupled with a challenging business environment and general concerns about the direction of regulation, has created a particularly daunting regulatory environment.

NASCUS and CSBS noted that Congress’ inclusion of the smaller issuer exemption recognized a need to protect smaller institutions from potential impact.  However, state regulators are concerned that regulations promulgated and taking effect by the law’s deadlines would have unintended negative consequences and would not be able to protect those institutions in the manner that Congress intended.

The comment letter can be viewed here.