Who Wins If the Debit Fee Cap Limit Gets Raised?

More than a decade after the Dodd-Frank Act redrew the regulatory boundaries of the banking industry, two Republican senators are seeking to revisit one if its key thresholds—a move that could steer millions in additional debit card revenue to community banks, credit unions, and their fintech partners.

According to Bloomberg, the legislation, introduced by Sens. Ted Cruz (R-Texas) and Katie Britt (R-Alabama), would allow more community banks to avoid the cap on debit interchange fees by indexing the current $10 billion asset threshold to inflation.

The proposal, titled the Community Bank Relief Act, would also benefit credit unions and fintechs that partner with qualifying banks.

The Durbin amendment to Dodd-Frank capped debit card interchange fees at 21 cents plus 0.05% of the transaction amount for banks with $10 billion or more in assets. When the law was enacted in 2010, roughly 80 banks exceeded that threshold, the senators note. Today, that number is closer to 130, including regional institutions such as Live Oak Bank in Wilmington, N.C., and Bancfirst in Oklahoma City.

Companion legislation is being introduced in the House by Representative Andy Barr (R-Kentucky).

Credit Unions, Fintechs See Benefits

The trade group America’s Credit Unions swiftly endorsed the proposal, saying the higher exemption threshold would benefit its members.

“As credit unions grow by serving more members and keeping pace with the economy, many are swept into limits that were intended for much larger institutions,” said America’s Credit Unions President/CEO Scott Simpson. “Indexing the threshold to inflation provides needed relief and restores fairness for community-based credit unions.”

Fintechs like Chime and Dave also stand to benefit from the new limit. These companies partner with smaller banks to access debit interchange revenue, which represents a key component of their business models. Expanding the pool of exempt banks would greatly increase their market.

An Outdated Limit

The legislation would apply the inflation adjustment retroactively to the law’s 2010 enactment. After several years of heightened inflation, that would push the new cap to more than $15 billion in assets.

“Interchange income is a big deal with any debit program, and the idea of the $10 billion asset cap was to provide retailers some relief on debit swipe fees while at the same time not disadvantaging smaller banks trying to compete with the big guys,’ said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “It’s been 15 years since Durbin was passed, and like anything else, $10 billion doesn’t buy what it used to. It makes sense that the cap should be tied to a formula that increments it over time.”

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Tags: ChimeCommunity BanksCredit UnionsDaveDebit Card FeesDebit FeesDodd-FrankDurbin Amendment