JPMorgan Objects to Fed's Interpretation of Debit Rule

JPMorgan Chase has raised its voice in the chorus of banks objecting how to the Fed is interpreting the Durbinamendment.

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Durbin is an amendment to the Dodd-Frank Actthat would cut fees merchants pay on debit cards. Like a lot of the Dodd-Frank bank reform law, it left the nuts and bolts to the regulators. The Fed put out a proposal for how it wants to implement Durbin, and asked banks to send comment letters. CNBC has obtained JPMorgan's comment letter.

Click here to see the full text of the JPMorgan letter.

JPMorgan's letter makes four key arguments:

  • The Fed went overboard on price control, well beyond what the Durbin Amendment requires.
  • Under the Fed's proposed implementation, banks wouldn't be able to cover their costs on debit cards, which goes against Durbin's stated aim.
  • The Fed's proposal would have unintended consequences for consumers and small businesses, driving the former out of the banking system, and hitting small merchants with significantly higher cash and check handling fees.
  • The deadline for implementation this July is just too short.

Much of what is in the letter has been stated publicly by top bankers at other institutions.

Joe Price, president of consumer and small business banking at Bank of America , told Reuters that "Many thought the Fed would set interchange pricing at a level that would cover the costs of providing payment processing services to debit cardholders and merchants. In fact, a growing number of U.S. Senators and Representatives have expressed those expectations... The rules as proposed would fail to provide fair compensation for the payments processing services that we and others supply."

The rules as written would also raise the cost of debit cards for consumers and stifle industry innovation in areas such as fraud protection, Price said.

The dialog between the Fed and the nation's banks is heating up as the April deadline for finalizing the new rules looms.