“Dirty” – smaller, community banks say – because the big banks were getting away with highway robbery, skimming upward of 44 cents every time a debit card was swiped.
Over the summer, the Federal Reserve ordered banks to cut the rate they charge merchants for debit-card transactions roughly in half to 21 cents. The Fed estimates large banks will see their fee revenue decline by more than 40%, or close to $13 billion, under the revised rule.
In the wake of the reduction in interchange fees brought on the by Dodd-Frank Act, Bank of America originally announced it would begin charging its debit card users a $5 monthly fee beginning January 2012.
The act creates a two-tier processing system where banks with assets in excess of $10 billion will have a cap on fees. Those under the $10 billion threshold are exempt from the cap.
Roger Beverage, president and CEO of the Oklahoma Bankers Association, says portions of the Dodd-Frank Act likely will help the majority of Oklahoma’s banking institutions.
“I think the answer is ‘yes,’ it will create more opportunities for community banks,” he says. “The real question is whether the payment system can accommodate and differentiate between debit cards from large banks or small banks. The jury is still out whether that can be done. We’re hopeful that can happen or otherwise all consumer costs will go up.
“You can’t take out $13 billion in revenue and not figure out a way to make that up.” Suzanne Symcox, executive vice president of First Fidelity Bank in Norman (a 90-yearold institution with assets just over $1 billion), says the new act could be a double-edged sword for smaller, community banks.
“We’re going to stay true to our core values, which is being a great financial solution for all of our customers,” she says. “You can’t talk to a banker that doesn’t think it’s gotten out of hand. We have yet to see what it’s going to be. I think Washington has lost sight of the community bank, and that’s really unfortunate.
“They’re still writing the rules around those regulations that have yet to come out,” Symcox (pictured) says. “It significantly has increased overhead for all banks. The most worrisome aspect is the small, community banks will suffer the most.”
Symcox says industry statistics show that 67% of all debit-card volume is handled through banks with more than $10 billion in assets.
At the end of October, movie-rental giant Redbox announced it was increasing its nightly rental fees by 20 cents to help offset some of the lost revenues due to an increase in fees charged by transaction processors Visa and MasterCard.
Moves like that worry Symcox. “If Visa gets into the mix in a wrong way by increasing the expense side, that could really affect community banks,” she says. “The fact that retailers are not paying the interchange any longer, I think the government perspective was that would result in lower prices for consumers. It hasn’t happened.”
Bank of America’s $5 use fee shook up the industry before the giant announced in November – after intense backlash – it would not charge a fee at this time.
The country’s largest credit union, the Navy Federal Credit Union, reported that new account openings following Bank of America’s announcement were 23% higher than average.
Wells Fargo and other large banks announced they would hold off implementing monthly fees.
While the Dodd-Frank Act limited swipe fees on larger institutions, it also brought on increased regulatory reporting for all institutions.
Symcox says most smaller banks have few employees, meaning less manpower to work on the increased compliance reporting required by the act.
Beverage and Symcox agree that the majority of the banking industry had nothing to do with the meltdown of 2008 and the ensuing bailouts — the main reasons behind the Dodd-Frank Act.
“I think there is a lot of confusion in the media and in consumer education of the various kinds of banks,” Symcox says. “A Wall Street bank is an investment bank. You can’t get a debit card or checking account at an investment bank. There are so many varieties of banks, and the media has lumped them all together.”“I think Washington has lost sight of the community bank, and that’s really unfortunate."
Photos by Mark Hancock