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Higher debit card fees at smaller banks provide short-term advantage

Trish Wexler

While smaller banks generally collect higher fees than larger banks on debit transactions due to exemptions from the Federal Reserve’s cap on fees, industry experts say that advantage may be short-lived.

“We have always felt that it would take time for the marketplace to shake out, and we still believe that community banks and other small issuers will experience a sizable decrease over time as both the networks and merchants continue to implement the Fed’s rule,” Viveca Ware, the senior vice president of regulatory policy for the Independent Community Bankers of America, said, according to the Wall Street Journal.

The Federal Reserve instituted a Dodd-Frank-mandated fee cap last October that amounted to 21 cents per debit transaction with an additional fee to cover any fraud-related costs. The cap applied only to large banks like Bank of America Corp., while smaller banks with less than $10 billion in assets were granted an exemption from the cap.

The second part of the rule, known as the Durbin Amendment, came into effect on April 1, but does not lend exemptions to small banks. The Durbin Amendment caps the amount a bank can charge a retailer to process a debit transaction—also referred to as interchange fees, the Wall Street Journal reports.

The Federal Reserve said on Tuesday that there were approximately 47 billion debit transactions in 2011, a 24 percent increase from 2009. Though the Fed’s data does not reflect the effect of the Durbin Amendment, small bank and credit union officials expect the rule to result in lower fees for these institutions in the coming months.

“Over time, community banks and credit unions will all experience an erosion of interchange revenue as the full effects of the Durbin Amendment make their way through the system,” Trish Wexler, a spokeswoman for the Electronic Payments Coalition, said, according to the Wall Street Journal.

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