What They Are Saying: Fed’s Proposal to Decrease Debit Interchange Revenue Will Harm Minority and Low-to-Middle Income Consumers

As the Federal Reserve considers stakeholder input in preparation of finalizing its misguided proposal that would reduce debit interchange fees by 30 percent, here’s what legislators, scholars, and thought leaders are saying about how this proposal would have a negative impact on minority and low-to-middle income consumers:

Legislators

Rep. David Scott (D-Ga.)

“This business of lowering the caps on debit card interchange fees will definitely hinder the bank's ability to offer low cost and no cost bank accounts to low and moderate income Americans […] I would hope that before we move on anything dealing with this, that we get a total understanding of the impact on low income and on our small businesses, because it's clearly complex. It's complicated, and you rush into these things unprepared and you cause great havoc.” [Remarks U.S. House Financial Services Committee Hearing on Oversight of Prudential Regulators, May 16, 2024]

Consumer Advocates, Scholars, and Thought Leaders

African American Chamber of Commerce of Western Pa.

“While well-intended, the reality is that when the Fed first capped debit interchange fees in 2011, it ultimately hurt low- and middle income communities, with particularly devastating effects on minority communities of color […] We cannot repeat the mistakes of our past […] We urge you to work with any necessary relevant parties to repeal this proposal.”

American Consumer Institute

“Since the Durbin Amendment was executed, consumers have been harmed on both sides of the equation. First, consumers were promised that retailers would "pass along" savings to consumers. Those savings never came to fruition. Several studies show that many retailers did not pass through these savings, and even raised prices after pocketing the savings from the lower interchange fees. Second, consumers suffered when banks were forced to increase fees on primary consumer financial products like ATMs and checking accounts. Rather than loosen, or better yet, reject this failed price cap, the Federal Reserve is now considering implementing a second, more onerous round of them. Reg II would lower the current cap from $0.21 (plus 0.05% of the transaction amount) to just $0.14 (plus 0.04% of the transaction amount). In real dollars, this would be less than a cap proposal the Fed rejected in 2011. If consumers were harmed by the first round of price controls, is there any debate whether a second and more arduous version would cause them further harm?” [Comment letter, 2024]

Center for Black Equity and Black Justice Coalition

“We are concerned that changes to Regulation II, as proposed by the Federal Reserve, would undermine the ability of the people we serve to achieve those goals. These changes would have dire consequences for millions of Americans, especially those in low- and middle-income communities. LGBTQ/SGL Americans often struggle to access traditional banking. According to the LGBTQI+ Economic and Financial (LEAF) Survey, nearly one in four LGBTQI+ adults in the survey reported being "unbanked," this is almost four times higher than the nationwide rate (6%) of unbanked households, according to the Federal Reserve. And we know for Black LGBTQ/SGL Americans, these numbers are even more staggering.” [Comment letter, March 14, 2024]

Cities for Financial Empowerment

“The BankOn National Account Standards are designed to address critical pain points for consumers, such as transparent pricing and surprise fees. Certification under the Standards prohibits overdraft or insufficient fund fees but allows for limited monthly fees and opening deposits in recognition of the costs of account maintenance. At the same time the Standards’ designated features, guardrails, and fee limitations are designed to meet those critical consumer needs, we also designed them to be economically sustainable for partner financial institutions, if not even somewhat profitable, rather than dependent upon more ephemeral charitable motivations. We note to the Board that interchange fees are a relevant component of that market sustainability.” [Comment letter, 2024]

Douglas Leadership Institute

“We recommend further review of Regulation II because we believe it would pick winners and losers […] the losers being low-income Americans […] The African American community was already unbanked at significantly higher rates than the rest of the country and felt disproportionate pain from the enactment of this swipe free price control. When adjusted for inflation, the new, stricter swipe fee cap proposed in Regulation II would be higher than the 12-cent cap the Fed previously rejected in 2011 for being too draconian. For this reason, we ask that you consider doing the same to Regulation II.” [Comment letter, Feb. 12, 2024]

Hispanic Leadership Fund

“It is particularly important that our financial system works better for consumers who face higher hurdles to access basic products and services. This includes members of underserved communities like Hispanic, Black, and low- and middle-income users […] BankOn has been remarkably successful in connect low- and middle-income Americans with core banking services. It is important to note this program is funded through interchange fees collected from debit card transactions. Proposed changes from the Federal Reserve to the existing fee cap could impact BankOn and possibly affect its success.”  [Comment letter, May 9, 2024]

Consumer Federation of America

“The Durbin exemption has led to a disconnect between the banks that partner with fintech companies to offer digital-only accounts and their obligations under the Community Reinvestment Act (CRA). Many fintech "neobank" partnerships involve a bank with only one or a handful of branches in a single metropolitan area, but through their digital-only products, these banks can serve households across the country. This structure allows banks to benefit from the Durbin exemption while having minimal physical presence in the communities they serve, effectively bypassing their CRA obligations.” [Comment letter, May 28, 2024]

National Action Network

“As well-intentioned as this [Regulation II] proposal sounds, it would take direct aim at banking access for Black households by undermining and even defunding a critical and successful program [BankOn] that has opened doors to banking services for low-income Americans and communities of color […] We urge against regression. Rather than endorsing the proposed interchange fee caps outlined in Regulation II, we implore you to champion essential endeavors such as BankOn, which dismantle obstacles to banking services for marginalized individuals.”  [Comment letter, April 30, 2024]

Neighborhood Allies

“We note to the Board that interchange fees are a relevant component of that market sustainability [for BankOn products] and express concern that a lowering of a cap on those fees would ultimately lead banks to scale back free or low-cost checking accounts that are of vital importance to low- and moderate-income individuals.” [Comment letter, 2024]

Pittsburgh Airport Area Chamber of Commerce

“With less interchange revenue, banks would again be forced to recoup revenue elsewhere, likely by increasing account fees. For smaller businesses that cannot afford cost increases, particularly during economic stress, this could mean stunted growth, fewer jobs created, and even the shutdown of shops altogether. I urge you to carefully review the data and consider how the Durbin Amendment had severe negative impacts. Lowering the cap further would only cause more harm to our communities. The vitality of the Keystone State economy may very well depend on it.” [Comment letter, March 18, 2024]

Pittsburgh Community Reinvestment Group

“When the Federal Reserve first capped debit card interchange fees in 2011, it increased the unbanked population […] Now, the Fed wants to lower the cap even further than it did in 2011. If the proposal moves forward, it will only exacerbate existing problems and create additional hardships for individuals, small businesses, and smaller financial institutions in our communities […] Interchange fees help fund these low-cost services provided by BankOn, so these programs will be directly threated if interchange revenue decreases any further.” [Comment letter, May 2, 2024]

CBA Advocacy

• To read a white paper CBA partnered to create with Nick Bourke, former founder and Director of the Pew Charitable Trusts Consumer Finance and Housing Program that highlights how Reg II will increase consumer costs by  $1.3-2 billion annually, click HERE.
• To read CBA’s two-page overview on why this proposal will affect consumer cost, click HERE.
• To read CBA and other leading financial trades’ comment letter regarding Reg II, click HERE.
• To read CBA and other leading financial trades’ response to the Fed’s proposal to decrease debit interchange fees, click HERE.