How do the revised rules in the Bipartisan Budget Act of 2015 affect you and your business?
The Dodd-Frank Wall Street Reform and Consumer Protection Act is celebrating its first birthday this month. It has been a year of changes and adjustment for area bankers, who have been handed 566 final rules and guidances by regulators since the legislation took effect in July 2010.
These 566 rules have resulted in 2,489 pages of new regulations, and the Colorado Bankers Association estimates that this number will increase to a total of 5,000 pages of new or expanded regulations as a result of Dodd-Frank.
The main concern of banking professionals and others in the industry since Dodd-Frank was initially presented in December 2009 was potential overregulation, according to acting Colorado banking commissioner Fred Joseph.
One of the most recent issues concerning local bankers is the decision of the Federal Reserve on debit card interchange fees, which was handed down late last month.
Dodd-Frank includes a provision that requires the Federal Reserve to issue rules ensuring that debit card fees charged to merchants are “reasonable and proportional to the cost of processing these transactions,” according to a summary of the Dodd-Frank legislation provided by the U.S. Senate.
After hearing much input from more than 11,000 commentators, the Federal Reserve handed down its rule, which states: “The maximum permissible interchange fee that an issuer may receive for an electronic debit transaction will be the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction.”
For now, smaller banks will receive the same fee they have been receiving, an average of 45 cents per transaction.
“Issuers that, together with their affiliates, have assets of less than $10 billion are exempt from the debit card interchange fee standards,” according to the Fed.
Its list of institutions above and below the small issuer exemption asset threshold is expected to be released any day now, if its sticks to its mid-July timetable.
The new rule will go into effect on Oct. 1.
Trickle down in the future
Bank of Colorado branch president Cody Fullmer anticipates that the regulation will trickle down to smaller banks in the future.
The new fees will result in a reduction in fee income for area banks, and although larger banks will begin receiving less than small banks, institutions with $10 billion or more in assets have more cards issued.
Debit card interchange fees are used to offset the refunds banks provide to customers in the event that their information is stolen and fraudulent charges are made to their accounts, Fullmer said.
When fraudulent charges are made on a customer’s account, Fullmer said, the bank refunds the customer and writes down the loss. With a reduction in fee income to help offset the costs associated with the refunds, banks will have to find other sources of income or cut costs elsewhere.
In some cases, cutting costs means reducing payroll and letting employees go, and in others it means closing underperforming branches, Fullmer said. Other options include charging for services that were once free, such as checking accounts.
Bank of Colorado still offers free checking, Fullmer said, but other institutions have begun charging for the service.
Eric Adams, Northern Colorado market president for Wells Fargo, which will be affected by the change, said his bank will have to decide how best to handle the decrease in fees.
“At Wells Fargo we are pleased that the Fed’s final rules on the debit card interchange fee considers the costs of providing debit card services that were not previously considered,” Adams said. “Unfortunately, the new cap is still below the cost of administering a quality debit card service to our customers. We will be reviewing the rules in detail and determining how to implement them accordingly.”
Molly Armbrister covers the banking industry for the Northern Colorado Business Report. She can be reached at 970-221-5400, ext. 209 or firstname.lastname@example.org.