The House and Senate conferees approved the financial regulatory reform conference report (otherwise known as the Dodd-Frank Wall Street Reform and Consumer Protection Act) late last week, and the House and Senate are now poised to vote on the legislation. As expected, the final version of the bill incorporates a provision requiring the Federal Reserve Board to write restrictions on the ability of card issuers to set interchange fees (see Section 1075 et seq., starting on page 308 of the PDF version of the conference report).
However, the interchange provision was substantially modified from its original form. Thanks to the successful lobbying efforts on the part of state governments, the prepaid industry and advocates for the unbanked community, prepaid cards used to disburse government benefits as well as reloadable prepaid cards are exempt from the interchange limits. It should be noted that such cards are exempt provided that they do not charge any overdraft fees and provide one fee-free withdrawal from the issuer’s ATM network per month.
The various lobbying efforts in support of striking the entire interchange provision from the bill proved less successful and ultimately failed. And while small issuers (i.e., issuers, together with it affiliates, having assets of less than $10 billion) are exempt from the interchange provisions, many have argued that the exemption is meaningless since small institutions will be forced to cut their interchange fees to compete with large banks.
