Federal Reserve Claims Debit Card Reform Benefited Small Banks
According to a new report from the Philadelphia Federal Reserve, small banks have seen positive effects from the Dodd-Frank financial reform bill, despite previous concerns they would be hurt by the reform. The study indicates debit card swipe fees have decreased since the new regulations were put in place in 2011, but the fees at small banks which were exempt from the bill have actually increased.
Every time a debit card is used, the issuing bank charges a swipe fee. This is money the bank receives for offering the card. A reduction in swipe fees would obviously mean a reduction in profits, which is what many banks were worried about when the Dodd-Frank reform was issued. Philadelphia Fed researchers find that’s just not the case for smaller banks.
The Dodd-Frank bill limited the swipe fees banks with more than $10 billion in assets could charge merchants. Exempt banks believed they would also see a negative impact from these changes, but “the evidence does not support the claim that competitive forces have effectively imposed the interchange fee ceiling on small banks.” In other words, small banks have not been pressured to lower their fees just because large banks were forced to under the new regulation.
In 2013, the Federal Reserve reported interchange fees had decreased dramatically since the Durbin Amendment, a component of the Dodd-Frank Wall Street Reform. At that time, the average swipe fee was $0.24, a decrease of 52% from the $0.50 average earlier that year.