Page 24 - GS250402

CoverStory

vention techniques/technologies – applies to financial in-
While the Federal Reserve stitutions with more than $10 billion in assets that issue
generally is considered an apolitical debit cards. It was adopted in 2011.
part of government, it, too, could In November 2023, the Fed proposed lowering the cap to
land in a political quagmire over a 14.4 cents plus 4 basis points and 1.3 cents to cover fraud
prevention costs.
plan to reduce the cap on
debit card interchange. When the plan was submitted for public comment, the
Fed said that going forward changes to the cap would be
approved by the Board of Governors without public com-
ment. More than 2,500 comments were submitted on the
Merchants, though, aren't convinced the deal will make a proposal. Financial institutions generally were opposed,
whit of difference. "Capital One-Discover combined will arguing it was too great of a reduction. Merchants, while
only be 3.5 percent of the credit card network market after supportive of the reduction, generally commented that it
the merger is done," said Doug Kantor, general counsel of did not go far enough.
the National Association of Convenience Stores.
Here's where politics comes in. Michelle Bowman, a for-
"Nothing there helps with the swipe fee [interchange] mer community banker and state bank regulator, was
problem." nominated by President Trump as Fed vice chair for su-

Breathing life into Credit Card Competition Act? pervision, where she would oversee Fed decisions relative
to regulations. As a governor on the Fed Board, Bowman
Also, in September 2023, Kantor, an executive committee was the lone dissenter in 2023 to lowering the cap.
member of the Merchants Payments Coalition, called for
passage of the Credit Card Competition Act. At the Fed, staff cannot present a proposal to the full
Board without approval from the vice chair for supervi-
Crafted by Senator Richard Durbin, D-Ill., and introduced sion, Bowman – assuming her appointment to the position
in the last Congress with bipartisan support, the legisla- is approved by the Senate, which at this writing has not
tion would require card issuers to program credit cards to yet occurred.
support merchant choice in processing. Specifically, cards
issued by financial institutions with at least $100 million Turmoil at CFPB
in assets would need to enable merchants to choose from Where the bulk of the political turmoil relative to our in-
two unaffiliated networks over which their card payments dustry is apt to occur is at the Consumer Financial Pro-
get processed, and only one of those networks could be tection Bureau. Created by the Dodd-Frank Act, CFPB has
owned by Visa or Mastercard. few if any allies within the Republican party.

J.D. Vance, then the junior Senator from Ohio, was one of During President Trump's first term in office, the agency
two Republicans in the Senate to sign on as a cosponsor of was effectively mothballed, and in early February 2025,
the legislation. The other was Josh Hawley, R-Mo. Identical the president fired the agency's director, Rohit Chopra.
legislation introduced in the House also had two Republi- Since then, major rules that were awaiting implementation
can cosponsors. were scuttled, the agency's budget and staff were scaled
back dramatically, and a new set of marching orders was
The legislation has yet to be introduced in the current put in place.
session of Congress, although Sen. Durbin suggested he
would do so. Passage would be difficult because it pits The CFPB's funding is controversial because, unlike most
several important constituencies against each other: big federal agencies, it does not get money from congressio-
banks, merchants and consumers. nal appropriations. It is funded from the Federal Reserve,

Fed debit haircut may get sidelined through the U.S. Treasury Department.

While the Federal Reserve generally is considered an apo- Although the CFPB is an independent agency of the Fed,
litical part of government, it, too, could land in a political the Secretary of the Treasury, currently Scott Bessent, can
quagmire over a plan to reduce the cap on debit card in- be appointed as acting director – a position Bessent held
terchange. for a time earlier this year. Currently Russ Vought is act-
ing director, a position he holds in tandem with Director
The current cap on debit interchange was ushered in by of the Office of Management and Budget.
the Durbin Amendment to the Dodd-Frank Act, an omni-
bus law passed in response to the financial crisis of 2008. The Fed's operating budget comes from fees it charges
The cap – 21 cents plus 5 basis points (0.05 percent) of the banks for payment services and regulatory oversight. In
ticket, plus up to 1 cent to cover investments in fraud pre- Fiscal Year 2015, the CFPB received a $823 million budget

24