Short title

This Act may be cited as the

Debit Interchange Fee Study Act of 2011

Findings

Congress finds that— (1)in response to the proposed debit interchange rule of the Board of Governors of the Federal Reserve System mandated by section 1075 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Chairman of Board, the Comptroller of the Currency, the Chairperson of the Federal Deposit Insurance Corporation, and the Chairman of the National Credit Union Administration Board have publicly raised concerns about the impact of the proposed rule; (2)while testifying before the Committee on Banking, Housing, and Urban Affairs of the Senate on February 17, 2011, the Chairman of the Board stated in response to questions about the small bank exemption to the interchange rule, “… there is some risk that the exemption will not be effective and that the interchange fees available through smaller institutions will be reduced to the same extent we would see for larger banks”; (3)the Acting Comptroller of the Currency, in comments to the Board, cited safety and soundness concerns and stated, … we believe the proposal takes an unnecessarily narrow approach to recovery of costs that would be allowable under the law and that are recognized and indisputably part of conducting a debit card business. This has long-term safety and soundness consequences—for banks of all sizes …; (4)the chairperson of the Federal Deposit Insurance Corporation stated in comments to the Board regarding the proposed rule their concern that the small bank exemption would not work, stating, … we are concerned that these institutions may not actually receive the benefit of the interchange fee limit exemption explicitly provided by Congress, resulting in a loss of income for community banks and ultimately higher banking costs for their customers; (5)the chairman of the National Credit Union Administration Board, in comments to the Board, cited concern with making sure there are meaningful exemptions for smaller card issuers; and (6)all of the comments and concerns raised by the banking and credit union regulatory agencies cast serious questions about the practical implementation of section 1075 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and further study and consideration are needed.

Rulemaking and effective dates

(a)

Extension for rulemaking timelines and revised effective date

Section 920 of the Electronic Fund Transfer Act (15 U.S.C. 1693o–2) is amended— (1)in subsection (a)(3)(A), by striking 9 months after the date of enactment of the Consumer Financial Protection Act of 2010 and inserting 24 months after the date of enactment of the Debit Interchange Fee Study Act of 2011; (2)in subsection (a)(5)(B)(i), by striking 9 months after the date of enactment of the Consumer Financial Protection Act of 2010 and inserting 24 months after the date of enactment of the Debit Interchange Fee Study Act of 2011; (3)in subsection (a)(8)(C), by striking 9-month period beginning on the date of the enactment of the Consumer Financial Protection Act of 2010 and inserting 24-month period beginning on the date of enactment of the Debit Interchange Fee Study Act of 2011; (4)in subsection (a)(9), by striking 12-month period beginning on the date of the enactment of the Consumer Financial Protection Act of 2010 and inserting 30-month period beginning on the date of enactment of the Debit Interchange Fee Study Act of 2011; (5)in subsection (b)(1)(A), by striking 1-year period beginning on the date of the enactment of the Consumer Financial Protection Act of 2010 and inserting 24-month period beginning on the date of enactment of the Debit Interchange Fee Study Act of 2011; and (6)in subsection (b)(1)(B), by striking 1-year period beginning on the date of the enactment of the Consumer Financial Protection Act of 2010 and inserting 24-month period beginning on the date of enactment of the Debit Interchange Fee Study Act of 2011. (b)

Earlier rulemaking voided; new rulemaking required

Any regulation proposed or prescribed by the Board pursuant to section 920 of the Electronic Fund Transfer Act (as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act) prior to the date that is 6 months after the date of completion of the study required under section 4 shall be withdrawn by the Board and shall have no legal effect.

Study

(a)

Study required

Not later than 12 months after the date of enactment of this Act, the study agencies shall jointly submit a report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives regarding the impact of regulating debit interchange transaction fees and related issues under section 920 of the Electronic Fund Transfer Act. (b)

Subjects for review

In conducting the study required by this section, the study agencies shall examine the state of the debit interchange payment system, including the impact of section 920 of the Electronic Fund Transfer Act on consumers, entities that accept debit cards as payment, all financial institutions that issue debit cards, including small issuers, and debit card networks, and shall specifically examine— (1)the costs and benefits of electronic debit card transactions and alternative forms of payment, including cash, check, and automated clearing house (ACH) for consumers, merchants, issuers, and debit card networks, including— (A)individual consumer protections, ease of acceptance, payment guarantee, and security provided through such forms of payments for consumers; (B)costs and benefits associated with acceptance, handling, and processing of different forms of payments, including labor, security, verification, and collection where applicable; (C)the extent to which payment form impacts incremental sales and ticket sizes for merchants; (D)all direct and indirect costs associated with fraud prevention, detection, and mitigation, including data breach and identity theft, and the overall costs of fraud incurred by debit card issuers and merchants, and how those costs are distributed among those parties; and (E)financial liability and payment guarantee for debit card transactions and associated risks and costs incurred by debit card issuers and merchants, and how those costs are distributed among those parties; (2)the structure of the current debit interchange system, including— (A)the extent to which the current structure offers merchants and issuers, particularly smaller merchants and issuers sufficient competitive opportunities to participate and negotiate in the debit interchange system; (B)an examination of the benefits of allowing interchange fees to be determined in bilateral negotiations between merchants and issuers, including small issuers directly; (C)mechanisms for allowing more price discovery and transparency on the part of the consumer; and (D)the ability of new competitors to enter the payment systems market and an examination into whether structural barriers to entry exist; and (3)the impact of the proposed rule reducing debit card interchange fees issued by the Board entitled, Debit Card Interchange Fees and Routing (75 Fed. Reg. 81,722 (Dec. 28, 2010)), if such proposed rule were adopted without change, including— (A)the impact on consumers, including whether consumers would benefit from reduced interchanges fees through reduced retail prices; (B)the impact on lower and moderate income consumers and on small businesses with respect to the cost and accessibility of payment accounts and services, the availability of credit, and what alternative forms of financing are available and the cost of such financing; (C)the impact on consumer protection, including anti-fraud, customer identification efforts, and privacy protection; (D)the impact of reduced debit card interchange fees on merchants, including a comparison of the impact on small merchants versus large merchants; (E)the potential consequences to merchants if reduced debit interchange fees result in elimination of the payment guarantee or other reductions in debit card services to merchants or shift consumers to other forms of payments; (F)the impact of significantly reduced debit card interchange fees on debit card issuers and the services and rates they provide, if fees do not adequately recoup costs and investments made by issuers and the potential impact on the safety and soundness of issuers; (G)whether it is possible to exempt or treat differently a certain class of issuers within the debit interchange system, such as small issuers and the impact of market forces on such treatment; (H)the extent to which a transition to a fee cap from an interchange fee that is proportional to the overall cost of a transaction could provide a reasonable rate of return for issuers and adequately cover fraud and related costs; (I)the impact on other entities that utilize debit card transactions, including the debit card programs of Federal and State entities; (J)the impact of shifting debit transaction routing from card issuers to merchants, including resulting changes to interchange fees and costs for card issuers; and (K)the impact of mandating a specific number of enabled networks on merchants and debit card issuers, including the specific and unique impact on small issuers.

Definitions

For purposes of this Act, the following definitions shall apply: (1)

Board

The term Board means the Board of Governors of the Federal Reserve System. (2)

Study agencies

The term study agencies means the Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the National Credit Union Administration. (3)

Small issuers

The term small issuers means debit card issuers that are depository institutions, including community banks and credit unions, with assets of less than $10,000,000,000.