News that large banks will soon begin charging new fees and ending free checking has spread like wildfire across the nation, but Illinois bankers say their own Sen. Dick Durbin is responsible for fanning the flames.
Linda Koch, the president of the Illinois Bankers Association, said that all banks are facing overwhelming compliance costs as a result of last year’s Dodd–Frank Wall Street Reform and Consumer Protection Act. One provision, known as the Durbin Amendment, is one of the law’s most controversial rules and has hit banks the hardest.
Durbin fought tooth and nail against a lobbying campaign launched by the financial industry in order to provide retailers debit card swipe cost relief. He ultimately succeeded in capping the amount that banks and card issuers could charge for each swipe.
In the past, retailers have been paying financial institutions up to 44 cents for each debit card transaction they process, known as interchange fees. Durbin’s amendment, which went into effect on Oct. 21, capped the fee at 21 cents.
While the rule only applied to banks that have $10 billion in assets or more, Koch said that there are long term implications for smaller banks.
“The impact of that law will certainly affect banks of all sizes,” Koch said.
One fear expressed by smaller institutions is that the market will eventually require them to reduce their interchange income down toward the larger banks regulated levels.
According to Koch, banks in Illinois are looking at a host of things that they have to do to make up their earnings. Even though it’s early, she said, banks have already begun laying off employees and ending free checking and reward’s programs. Some banks have also started selling branches.
Cheryl Sio, the president of the Members Alliance Credit Union, said it is taking a “wait and see attitude.”
Although Sio said Members Alliance Credit Union has not talked about imposing a fee yet, but she acknowledged that people have to find ways to make up for lost income.
The MACU falls in the district of Rep. Don Manzullo (R), who Sio said has been very supportive of small banks and credit unions throughout the Durbin Amendment debate.
During a House Financial Services hearing held on the interchange cap earlier this year, Manzullo criticized Fed Governor Sarah Bloom Raskin for neglecting to get the input on community banks before writing language for the rule.
Raskin told Manzullo during the hearing that they did not survey smaller institutions since Congress exempted them from the law.
“That doesn’t make any difference,” Manzullo said. “Your job was to figure the impact on the consumer and on the retail industry and the banking industry. And just because they were exempted does not mean that they weren’t impacted. So I think that you’re surveys and your studies are flawed and you should admit that.”
Koch said the IBA has had a “tremendous” amount of support in Congress.
Both Manzullo and Rep. John Shimkus (R-Ill.), according to Koch, have offered their support.
Although Manzullo and Shimkus have been sympathetic towards the smaller financial institutions in their districts, neither has signed their name to the Durbin Amendment repeal bill that was recently offered in the House by Rep. Jason Chaffetz (R-Utah) and Congressman Bill Owens (D-N.Y.).
A Durbin Amendment repeal effort isn’t a prospect that the defeated Illinois banking industry is jumping at either.
“Repealing that would be great but that’s a long process,” Sio said. “The damage has already been done.”
Koch said she strongly supports the repeal effort but admitted that the financial industry has much to deal with right now and any change would have to be significant at this point in order to make a difference.
According the Koch, banks now have to focus on making up lost revenue for their shareholders.
“They have to show that their earnings are being maintained in order to generate new capital,” Koch said. “It’s a serious problem all the way around.”
On top of gearing up for a repeal effort, the financial industry is also preparing for an anticipated Congressional proposal to cap credit card interchange fees.
“Credit cards could be disastrous,” Sio said. “All institutions rely on those fees to support those services. Any reduction is only going to be absorbed by consumer.”