Bernanke: Swipe Fee Reform Will Hurt Small Banks - Other News

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Credit Card Applications » News » Other » Bernanke: Swipe Fee Reform Will Hurt Small Banks

Bernanke: Swipe Fee Reform Will Hurt Small Banks

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Bernanke: Swipe Fee Reform Will Hurt Small Banks

New swipe laws set to go into effect may just put some banks out of business. The purpose of these new regulations is to help merchants cut down on the fees they pay to banks when customers use debit cards to make purchases. Darwin may not have had banks in mind, but his concept of survival of the fittest certainly seems to apply to this situation. Federal Reserve Chairman Ben Bernanke backs up this notion. In his recent testimony to the Senate, he expressed fear that new debit card swipe fee rules will cause community banks and credit unions to fail throughout the country.

The Testimony

Senator Jon Tester from Montana led the questioning of Bernanke. Senator Tester voted against the new swipe fees going into effect. According to testimony records, Senator Tester went on record to say that in order to make up the money that community banks and credit unions will lose from the new rules, these small banks will have to raise the fees for checking and mortgage transactions. With higher fees, these smaller banks may price themselves out of the market, making them less competitive against big banks that can better afford to take the hit from the loss of swipe fees.

Consumer Punishment

Sheila Bair, who is the chairwoman of the Federal Deposit Insurance Corp., says that the new swipe fees will simply increase costs to consumers to cover the loss of fees to banks. She shares,“I do think this is going to reduce revenues at a number of smaller banks, and they will have to pass that on to customers in terms of higher fees. That’s going to happen. Is that the right result — is that the result that Congress wanted? You need to determine that, but I think that is what will happen.”

Exceptions to the Law

As part of the testimony, Senator Tester suggested that an exemption be made for small community banks and credit unions. This suggestion is not a new one, having come up in previous testimonies and discussions concerning the swipe fees. Bair states that the practice of separating the fees between big banks and smaller ones is questionable.

She does suggest that the Fed may have the ability to use Federal Regulation E as a leveraging point to institute a two-tier pricing program as a way to create a level-paying field for banks. No mention was made as to whether or not the Fed will take this idea into consideration before moving forward with the law.

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