July 29, 2010
ABA Media Contact: Peter Garuccio
ABA TESTIFIES ON IMPACT OF INTERCHANGE FEES ON SMALL BUSINESSES
WASHINGTON — The American Bankers Association stated today that price setting of interchange fees will ultimately harm consumers, and called for a repeal of the interchange amendment that became part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Testifying on behalf of ABA before the House Committee on Small Business, Robert Oeler, president and chief executive officer of Dollar Bank in Western Pennsylvania and Northeastern Ohio, said that the interchange amendment will “wreak havoc” on the ability of banks like his to offer reasonably-priced products to consumers and small businesses.
Oeler noted that demand deposit accounts are the central product offered by both large and small banks, and that debit cards allow smaller banks to offer their customers the same global transaction service that big banks provide.
“The revenue banks receive from interchange helps to offset some of the costs of providing demand deposit services, costs which far exceed the revenue per account from interchange income.”
For example, Oeler said that Dollar Bank handles roughly 16 million debit card transactions each year, generating $4.6 million in revenue in 2009, based on total card sales volume of $600 million on 140,000 debit cards. This is equivalent to less than $3 per month per card.
“This revenue is important,” said Oeler, “but it does not cover our costs of maintaining a transaction account, which run between $12 and $15 per month. Without this income, it becomes very difficult for many banks to continue to offer low and no-cost checking for our customers.”
Oeler further stated that the interchange price control language will also make it harder for banks to make loans. Again using his bank as an example, he said that a 50 percent reduction in interchange revenue translates into as many as 200 fewer small business loans that could be made by Dollar Bank each year. For the industry as a whole, Oeler estimated that lending could fall by as much as $74 billion.
He also said that debit cards bring a wealth of benefits to merchants when they choose to accept them for purchase; including increased sales, lower wait times for customers, immediate payment, transfer of fraud risk, and reduced cost and risk of managing cash.
“The interchange fees merchants pay for these benefits have been an integral component of the payments system for decades,” said Oeler. “They should be willing to pay for the service, as is the case with all their other services.”
With regard to the notion that retailers will lower their prices to pass savings on to consumers, Oeler was extremely skeptical.
“No reasonable person expects that to happen nor did Congress mandate that such a result occur.”
Finally, Oeler said that the negative consequences stemming from restrictions on interchange revenue are so great that Congress should revisit and repeal the provision.
“The Dodd-Frank Act merely shifts the costs from merchants to banks and their customers. While big-box retailers may benefit and see their profits increase, ultimately it is debit card holders that will end up paying the costs for these convenient methods for making everyday payments.”
Click here for a copy of Oeler’s testimony
The American Bankers Association represents banks of all sizes and charters and is the voice for the nation’s $13 trillion banking industry and its two million employees. ABA’s extensive resources enhance the success of the nation’s banks and strengthen America’s economy and communities. Learn more at aba.com.
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