With Congress voting down last week for the second time a delay in implementation of the Durbin amendment to Dodd-Frank, it’s time for the banking industry to move on.
Brian Gardner, an analyst with Keefe, Bruyette & Woods in Washington, D.C. wrote in a note to clients Thursday that Congressional action on the Durbin amendment is now “a dead issue.”
Karen Thomas, senior executive vice president for government relations and public policy at the Independent Community Bankers Association, said: “I think it’s going to have to rest for awhile.”
The Durbin amendment is estimated to wipe out $15.2 billion in annual debit card fee income by capping the fee banks can charge retailers for debit card transactions, according to R.K. Hammer Investment Bankers, a bank card advisory firm.
Although the regulation states only banks with more than $10 billion in assets will be impacted, many believe the impact will be felt even at much smaller banks, which Bank Director Editor Jack Milligan explained here.
Gardner expects the Fed to release its final rule on debit interchange fees within weeks (the rule takes effect July 21). Like other analysts, he expects the 12 basis point cap on fees to be the floor and that “the final rule will provide some relief to card issuers.”
Thomas said the Fed will have to consider the cost of fraud protection on debit cards, and she’s hopeful it will consider other costs as well.
So the focus has moved to influencing the final Fed rule, although at this late stage, that might be hard to do.
The bigger picture is that banks already have been making changes and will have a lot of work to do on their business models going forward: With slow economic growth, higher capital requirements and reduced fee income from products such as debit cards, how will some of them, especially the smaller banks, make money going forward?
Robert Hammer, chairman and CEO of R.K. Hammer in Los Angeles, argues that banks will now look for new sources of fee income.
“Fees will rise as an unintended consequence of the legislation, no matter how well intentioned the Durbin bill may have been,’’ he writes.
Among them, potential fees for customers who don’t use their debit cards very much. Already, banks have been scaling back rewards programs for debit card users.
But the fee issue is just one piece of the puzzle for banks that are looking now at the big picture of how to grow and make a profit in a slow economy.
Board members have become more engaged in these questions than in prior years, says Will Callender, a consultant for First Manhattan Consulting Group in New York.
“We are seeing more rigor around the strategic process,’’ he says. “In prior years, it was ‘we do (strategic planning) because we do this every year.’ Now, everybody is more involved and asking more questions. ‘What lines of business are critical? What’s our plan for growth or profitability?’”