GAO Finds Community Banks, Credit Unions Have Benefitted From Debit Reform, Says the Merchants Payments Coalition

September 20, 2012 – In a comprehensive report on how financial regulatory reform is affecting community banks and credit unions, the U.S. Government Accountability Office finds that these financial institutions have benefitted since reform of debit swipe fees, which went into effect on October 1, 2011.

Banks with less than $10 billion in assets are exempt from debit swipe reform which limits the fees charged by the big banks for each debit transaction. In its report, the GAO notes that approximately 99 percent of all banks in the U.S. had less than $10 billion in assets in 2011 – and that 14,300 banks, credit unions, savings and loans, and savings banks qualified for the debit swipe fee exemption last year.

“This report should lay to rest once and for all the myth that debit swipe reform is harming the majority of American banks,” noted Doug Kantor, counsel to the Merchants Payments Coalition. “Debit swipe reform is working for community banks and credit unions, just like it’s working for merchants and consumers across the country. The only ones crying foul are the big banks who are no longer reaping windfall profits from a broken system.”

Key findings of the GAO report include:

• “Initial data collected by the Federal Reserve indicate that card networks largely have adopted a two-tiered interchange fee structure after the implementation [of the debit swipe fee reforms] to the benefit of exempt issuers.” (p.28) (emphasis added)
• Swipe fees received by exempt banks “increased, in aggregate, on a quarterly basis after the [swipe fee] rule became effective.” (p. 29)
• “The aggregate interchange fee income reported quarterly by these [exempt] banks from the second quarter of 2011 through the first quarter of 2012 was about $532 million, $547 million, $575 million, and $585 million, respectively from the second quarter of 2011 through the first quarter of 2012.” (p. 29) This represents a consistent increase over each quarter with a total increase of $53 million over that time period.
• “Unlike the large banks, community banks and credit unions generally have not, on average, experienced a significant decline in their debit interchange fees as a result of the Federal Reserve’s implementation of [the debit interchange fee provision of the Dodd-Frank Act].” (p.27)

The GAO also notes that the average debit swipe fee received by banks exempt from the reforms was $0.43 in the fourth quarter of 2011, compared to $0.24 for the big banks. Considering that according to the Federal Reserve’s own survey data, it costs banks an average of 4 cents to process a debit transaction, this is a healthy profit for all financial institutions.

“One year after debit swipe reform was implemented, there is more competition in the payment processing system and lower swipe fees are helping consumers save money as merchants offset rising costs of things like gas and food and keep prices down. That’s good news for businesses, consumers and our economy,” said Kantor.

Click here for the full GAO report issued on September 13.

The Merchants Payments Coalition (MPC) – UnfairCreditCardFees.com – is a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees.

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