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Thursday, July 29, 2010

Price Fixing on Interchange Fees Hurts Small Businesses

Today, a community banker, Robert Oeler from Dollar Bank in Pennsylvania, gave testimony in the House Small Business committee about how the Durbin Amendment will affect his bank. Here is what he had to say. I couldn’t agree more.

Any changes to the interchange system will impact all small businesses – small banks included. The vast majority of banks in our country are community banks – small businesses in their own right. In fact, over 3,200 banks and 6,100 credit unions have fewer than 30 employees…

The Durbin Amendment, which was added to the bill without any hearings, limits consideration of many important costs of providing debit cards and does not even allow for a reasonable return on investment. Such uneconomic pricing will hurt my ability to offer reasonably-priced banking products to consumers and small businesses in my community. Let me illustrate this: Last year, we processed 16 million debit card transactions and made less than $3 per month for each debit card. This revenue is important, but does not cover our costs of maintaining a transaction account which run between $12 and $15 per month. Without this income, it becomes very difficult for many banks to continue to offer low and no-cost checking for our customers.

The loss of revenue has other impacts as well, including making it harder to make loans. This is even more pronounced for Dollar Bank, since we are a mutual. The only way we can raise capital is through retained earnings. If we lose interchange income, it means that we will be unable to make as many loans in our community. In fact, if we see at Dollar Bank a 50 percent reduction in after-tax income on interchange it means 200 fewer small business loans can be made each year – year after year. For the industry as a whole, a 50 percent loss of interchange income would mean that lending could fall by as much as $74 billion.

For the complete written testimony, click here.

For the complete hearing record, click here.

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