A new rule limiting the price banks can charge when customers pay at the store with a debit card is part of a pattern of regulatory overreach since the passage of President Obama’s far-reaching financial reform law that threatens the health of the banking industry and limits options for consumers, the head of the American Bankers Association warned in an interview Tuesday.
ABA President and CEO Frank Keating was critical of a number of policy decisions from Obama officials, including the cap on so-called debit card “swipe fees” that went into effect Saturday and the creation of the Consumer Financial Protection Bureau.
“What the Congress did by price-fixing was make a decision that was not theirs to make,” Mr. Keating said in an interview with editors and reporters at The Washington Times, adding, “You always have to have a healthy suspicion when the government is involved.”
The swipe fee fight — and recent moves by Bank of America and other top lenders to raise other customer charges to make up the estimated $7 billion in lost revenue — has landed the industry in a very public dispute with Mr. Obama, who criticized the higher fees directly in an ABC News interview Monday evening.
The hiked fees are “exactly why we need somebody whose sole job it is to prevent this kind of stuff from happening,” Mr. Obama said, defending the need for the Consumer Financial Protection Bureau, created by 2010’s Dodd-Frank financial overhaul law, as a watchdog.
Treasury Secretary Timothy F. Geithner, in an interview Tuesday on CNN, added it was “no surprise” bankers were fighting the new rules and restrictions. He predicted that, “in the end, we will prevail because what we are doing are reasonable and sensible things” in light of recent market crises.
But Mr. Keating, a former Republican Oklahoma governor, compared the recent regulatory press on his industry to a basketball game with more referees than players, noting that many of his member banks employ more people to deal with regulatory compliance than they do to make loans or deal with customers.
“It would be as if you have two teams of girls or two teams of boys playing basketball, and there were 30 refs watching those five players on each side playing,” he said. ” … You would have a foul called every two or three seconds.”
“A timeout isn’t a bad idea,” he added.
Mr. Keating focused much of his criticism on the Dodd-Frank law. He said the government threw heavy regulations at banks in the wake of the 2008 financial crisis and the $700 billion government bailout of Wall Street. The law’s cap on swipe fees, sponsored by Illinois Democratic Sen. Richard Durbin and a particular target of banker unhappiness, amounts to “price-fixing” by the government, the ABA chief said.
“Pieces of Dodd-Frank are an example of overkill and excess as a result of the desires to get even and to make sure this never happened again.”
He said some regulation is necessary, pointing to the new rules for underwriting and sustainable capital levels.
“It’s appropriate,” he said. “It’s perfectly sound.”
But he fears many of the regulations go too far. Pushing for a 20 percent down payment from homebuyers to qualify for the lowest interest rates, for example, will only slow the industry down, because it takes most people years to save that much money.
“Let’s be realistic,” he said. “It’s not a sensible, optional alternative.”
He particularly picked on the Durbin amendment in the Dodd-Frank Act, which caps the swipe fees banks charge merchants.
Merchants won a showdown with banks this summer, after the reform was called into question in June and nearly overturned.
Going forward, swipe fees will be capped at 21 cents — a sharp cut from the average 44 cents that banks had been charging. CardHub.com estimates these reforms will take a $9.4 billion bite out of the wallets of large banks.
To make up for the losses, banks have warned that they will raise other fees and create new ones for consumers, something that already appears to be happening.
Mr. Keating explained that free checking accounts are on the way out and the “model is not sustainable” because they cost banks $250 a year to manage. They were using money from swipe fees to fund these free services, but now they will have to cut many of them.
“Banks have to survive someway,” Mr. Keating said. “And the services they provide have to be paid for someway.”
Mr. Keating said that, despite the grumbling, the banking industry is adjusting in some cases to the new regulatory and market realities.
He noted, “The problem is if somebody lops off a finger, you’re going to figure out how to use that hand even in the absence of the finger.”