A recent report by the Kansas City Federal Reserve Bank revealed that a cap on interchange fees mandated by Dodd-Frank has had little effect on small community banks.
Dodd-Frank’s controversial Durbin Amendment classified banks into one of two groups: banks with more than $10 billion in assets and banks with less than $10 billion in assets. The rule, which took effect last fall, capped the amount a bank could charge a merchant to process a debit transaction but exempted small banks from the measure, Albuquerque Business First reports.
Community banks across the country voiced concern that card networks would not establish a two-tier payment system and would reduce their fees as well, which could result in further revenue losses. The Fed report, however, revealed that card processing networks have indeed established a two-tiered payment system and that community banks are making as much on interchange fees as before the enactment of Dodd-Frank.
The average interchange fee for large banks has fallen drastically from 50 cents to 24 cents, while the average fee for small banks has only dropped to 43 cents from 45 cents.
“The regulations forced fees down for regulated [large] banks, but average fees for exempt [small] banks changed little after the regulations took effect in the fourth quarter of 2011,” the study said, according to Albuquerque Business First.
Large banks have responded to the rule by imposing new fees on services that were previously fee-free, including traditional checking and debit cards. Many community banks and other smaller financial institutions, however, have moved in the opposite direction, introducing new rewards programs for debit card purchases or opening checking accounts, which has led some institutions to gain a number of new customers.