The Fed Invites the Public to Gawk (And Comment) On New Debit Card Rules
Debit card fees aren't exactly the most exciting subject and I wasn't expecting a bang of a show from the Fed as they tried out the thrilling world of live broadcasting but I certainly didn't expect such a yawn either.
Firstly, might I offer a humble suggestion to the Board for the next live webcast? Keep Governor Tarullo out of frame. He was obviously bored out of his mind and not fooling anyone with his distracted book-flipping. Not only that but I'm sure I wasn't the only one who caught him casually flicking at his nose with his pinky; maybe that's why the Board doesn't do this sort of thing as a habit.
Important takeaways from the webcast include the fact that even with their data and hard working putting said data into a pretty little proposal, participants really have absolutely no idea what proposed rule changes might mean nor the impact they could have on the market as a whole. If anyone is surprised by that admission, they obviously haven't been paying attention thus far. I heard "we don't know" more than I heard "this is pretty much what we expect to happen", leaving me a bit questionable on the research that went into putting this proposal together in the first place.
But since this is a warm and cozy attempt on the part of the Fed to let the unaware public into the marble halls of the Board and behind central bank process, it's all about public comment. Well, public, get to it!
I especially appreciated Kevin Warsh's snarky quip on the Fed's actual job versus what they're doing now and who, ultimately, has the responsibility to do this shit. Hint: it isn't the crew sitting around the big conference table casually trying not to pick their noses on camera.
I too can support putting the rule forward for further comment. I think we should be bound, as many of the questions suggested, by a couple principles. One is we're looking for a dynamic, competitive marketplace for payments broadly. I think recent evidence suggests that we continue to see more convenience, more options, more choice for consumers, and this is a development that our rules should try to encourage rather than discourage.
Secondly, it's a new set of responsibilities for the Federal Reserve, and like vice chair Yellen said, I really compliment the staff on bringing together a lot of economic analysis, customer -- consumer oriented knowledge in terms of how they're going to understand differences in these provisions, and legal knowledge. So it's a new set of responsibilities for us, and in part because of that I think we should be particularly keen to listen to comments and hear people's perspectives. And then finally the other principle is it's not our job to substitute our judgment for the judgment of Congress, and Congress has given us some clarity on rules and what our regulations should suggest and we should try to adhere as best we can to it.
So with that I do support the proposal. I think I'd be particularly interested in comments on whether there is a viable, more pro-competitive alternative to setting prices consistent again with the legislation. And secondly, understanding better the impact of the proposed rule, the broad set of payment options available to consumers so we continue the trend towards a more dynamic and competitive environment.
The proposed rule, which all participants voted to bring to comment, is as follows:
The proposed new Regulation II, Debit-Card Interchange Fees and Routing, would establish standards for determining whether a debit card interchange fee received by a card issuer is reasonable and proportional to the cost incurred by the issuer for the transaction. These standards would apply to issuers that, together with their affiliates, have assets of $10 billion or more. Certain government-administered payment programs and reloadable general-use prepaid cards would be exempt from the interchange fee limitations.
The Board is requesting comment on two alternative interchange fee standards that would apply to all covered issuers: one based on each issuer's costs, with a safe harbor (initially set at 7 cents per transaction) and a cap (initially set at 12 cents per transaction); and the other a stand-alone cap (initially set at 12 cents per transaction). Under both alternatives, circumvention or evasion of the interchange fee limitations would be prohibited. The Board also is requesting comment on possible frameworks for an adjustment to the interchange fees to reflect certain issuer costs associated with fraud prevention.
If the Board adopts either of these proposed standards in the final rule, the maximum allowable interchange fee received by covered issuers for debit card transactions would be more than 70 percent lower than the 2009 average, once the new rule takes effect on July 21, 2011.
The proposed rule would also prohibit all issuers and networks from restricting the number of networks over which debit card transactions may be processed. The Board is requesting comment on two alternative approaches: one alternative would require at least two unaffiliated networks per debit card, and the other would require at least two unaffiliated networks per debit card for each type of cardholder authorization method (such as signature or PIN). Under both alternatives, the issuers and networks would be prohibited from inhibiting a merchant's ability to direct the routing of debit card transactions over any network that the issuer enabled to process them.
I am not at all against curbing excessive transaction-based fees but just hope that someone gets the chance to do a little research ahead of this plan because if the banks can't get it from transactions, they're certainly going to take it from somewhere else.
There goes your free toaster.
JDA has comments but, unfortunately, not enough data at this point to know whether or not her comments are reasonable or simply inflammatory nonsense.