Barr: Fed sensitive to debit proposal’s impact on LMI borrowers

The Federal Reserve Board is sensitive to the impact of its debit interchange proposed rule on low- and moderate-income borrowers, Fed Vice Chair for Supervision Michael Barr said.

Committee Hearing: Testifying at a House Financial Services Committee hearing in response to a question from Rep. David Scott (D-Ga.), Barr said the Fed is reviewing feedback on the proposal to update Regulation II, which would impose a nearly 30% cut to debit interchange. Scott expressed significant concerns about the detrimental impact of the rule on access to mainstream financial services products for LMI borrowers and unbanked households and called for a pause in the rulemaking until these factors are better understood.

ICBA View: ICBA recently called on the Fed to withdraw the Reg II proposal, noting it leave nearly one-third of covered issuers below cost recovery. In its comment letter and in a separate joint letter with other groups, ICBA said the proposal would harm consumers, restrict resources used to mitigate fraud, and disproportionately affect smaller issuers.

Proposal Details: The Fed proposal would lower the maximum interchange fee that covered debit card issuers may receive for debit card transactions under Reg II. It would adjust the interchange fee cap for debit card issuers with at least $10 billion in assets and establish a regular process for updating the maximum amount every other year based on issuer cost data.

Previous ICBA Advocacy: ICBA has expressed deep concerns about the impact of the proposal on community banks and previously urged the Fed to reject merchant requests for further changes to Reg II. It supports legislation introduced by Rep. Blaine Luetkemeyer (R-Mo.) directing the Fed to stop and study its proposed changes before finalizing the rule.