WASHINGTON — A provision in the regulatory reform bill that banks already oppose is drawing new attention over who will implement it.
Sen. Richard Durbin's interchange amendment specifies that the Federal Reserve Board would draw up regulations limiting debit fees, but many observers agree the new consumer protection regulator — not the Fed — could end up with the ultimate authority over the rules.
That prospect has pushed industry representatives to fight the amendment on two fronts. While they still aim to soften or even remove it from the final bill, a second priority is to keep the rulemaking authority in the central bank, not a new agency with vast powers to protect consumers.
"We're talking about regulating business-to-business transactions, which is not the province of the new consumer regulator," said Ken Clayton, the chief legislative counsel for the American Bankers Association. "We think the provision should be dropped in the first place, but if it's going to continue to exist then it's a business-to-business transaction that is … more appropriate for the Fed to make decisions on, if anyone, and not a consumer regulator, because this has nothing to do with consumers."
The Durbin amendment passed the Senate overwhelmingly last month despite unified opposition from banks and credit unions. The provision, which would amend the 1978 Electronic Fund Transfer Act, makes no mention of the consumer regulator. It would require the Fed to write rules within nine months of enactment ensuring debit interchange fees are "reasonable and proportional" to payment processing costs.
But in the broader reform legislation passed by the Senate on May 20, the electronic funds transfer law was one of several consumer-oriented statutes that would shift from the Fed's purview to the oversight of the Consumer Financial Protection Bureau 18 months after the law is signed. While the new consumer watchdog would be housed at the Fed, it would have broad powers to act independently.
That leaves it unclear which agency would have control over debit fee restrictions. If the central bank failed to write rules in time, the consumer bureau could take over. Even if the Fed did write rules before the transfer of power, the consumer bureau could alter them at any point in the future.
Industry observers were divided over whether lawmakers intended for the consumer regulator to oversee interchange rates.
Oliver Ireland, a partner at Morrison & Foerster and a former lawyer for the central bank, said Congress could shift jurisdiction for the broader EFTA while still exempting the interchange fee provisions and leaving those with the Fed.
"The drafting needs to be fixed. It makes the most sense for the Fed to do this. It's a technical payment kind of issue. It's not really a consumer protection issue," he said. "It's very simple. … You would put the word 'Board' back in … just for that amendment. It seems to me that that's probably what was intended and it makes the most sense."
Others disagreed, saying Durbin knew exactly what he was doing.
"He was, I'm confident, quite aware of what it did," said Douglas Kantor, an attorney for the National Association of Convenience Stores, which supports the amendment.
A spokesman for Durbin said the lawmaker has no plans to change his amendment. "We're open to hearing arguments in favor of clarification, but we don't currently see a need to do so," he said in comments e-mailed to American Banker.
The spokesman said the amendment as drafted would give rule-writing authority to the Fed and enforcement powers to the Federal Trade Commission.
"Under our language the Fed would issue the rules and the FTC would enforce them," he said. "Under Wall Street reform as passed by the Senate, regulation-writing authority under EFTA would migrate over to the CFPB, though that migration would take place after our amendment requires the initial regulations to be written. So the Fed will likely draft the initial rules no matter how the final Wall Street reform turns out and FTC would enforce them."
Kantor, a partner at Steptoe & Johnson, said banks are trying to spark confusion over the issue. He said the amendment provides the Fed with ample time to draft strong rules, and if the consumer financial protection bureau needs to weigh in later, it would be well-positioned to do so.
"I don't think there's a lot of ambiguity, but some people might be trying to create some," he said. "If you read the amendment it provides for the rulemaking to take place prior to the time period when the EFTA goes to the Consumer Financial Protection Bureau. There are a lot of things that between now and the time this is done that the credit card companies or banks are going to say about this amendment and a lot of them to sow confusion."
Kantor echoed an argument behind the measure: by limiting fees merchants pay to card issuers, it will lead to lower prices for consumers. "There's no reason to treat this differently than any other part of the Electronic Fund Transfer Act," he said. "Here you have in a number of different ways not only the business consumer and a concern about what fees they pay or don't pay, but every economic report that has looked at this concludes very clearly: consumers are footing the bill for these fees. … It's a little silly to say there's no consumer aspect of this. There is. And the CFPB is a perfectly appropriate regulator here."
The amendment was a victory for retailers who, for years have argued for some kind of oversight of interchange fees, which are set by the card networks and paid to card issuers.
In addition to restricting debit interchange fees, the measure also would allow merchants to set minimum transaction limits — now barred by the networks — for credit card purchases, and reward customers with discounts on goods if they use a network with a lower fee.
Clayton said that, without clarification over which agency is responsible for the rules, a court could ultimately have to be called in to resolve the issue. "It is unclear who ultimately has jurisdiction over this issue," he said.
But consumer groups agreed that the current Senate bill would hand the issue to the new consumer bureau — and like it that way.
"I read authority as shifting to the CFPA, too, but unlike the banks, who are desperately trying to demonize the CFPA and use that false characterization to help them kill the Durbin amendment — I see that transfer of function as a good thing," said Ed Mierzwinski, the consumer program director at U.S. Public Interest Research Group. "The CFPA is the best place to regulate all the laws that affect consumers in any way."
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