Credit Card and Debit Card Use: The Effects of Financial Regulation Law - Dodd-Frank (2012)

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• published: 23 Sep 2013
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The bills that came after Obama's proposal were largely consistent with the proposal, but contained some additional provisions and differences in implementation. The Volcker Rule was not included in Obama's initial June 2009 proposal, but Obama proposed the rule later in January 2010, after the House bill had passed. The rule, which prohibits depository banks from proprietary trading (similar to the prohibition of combined investment and commercial banking in the Glass--Steagall Act) was passed only in the Senate bill, and the conference committee enacted the rule in a weakened form, Section 619 of the bill, that allowed banks to invest up to 3% of their Tier 1 capital in private equity and hedge funds as well as trade for hedging purposes. The initial version of the bill passed the House along party lines in December by a vote of 223--202,[1] and passed the Senate with amendments in May 2010 with a vote of 59--39[1] once again along party lines.[1] The bill then moved to conference committee, where the Senate bill was used as the base text[17] although a few House provisions were included in the bill's base text.[18] One provision on which the White House did not take a position[19] and remained in the final bill[19] allows the SEC to rule on "proxy access" -- meaning that qualifying shareholders, including groups, can modify the corporate proxy statement sent to shareholders to include their own director nominees, with the rules set by the SEC. This rule was unsuccessfully challenged in conference committee by Chris Dodd, who -- under pressure from the White House[20] -- submitted an amendment limiting that access and ability to nominate directors only to single shareholders who have over 5% of the company and have held the stock for at least two years.[19] The "Durbin Amendment"[21] is a provision in the final bill aimed at debit card interchange fees and increasing competition in payment processing. The provision was not in the House bill;[14] it began as an amendment to the Senate bill from Dick Durbin[22] and led to lobbying against it.[23] The law applies to banks with over $10 billion in assets, and these banks would have to charge debit card interchange fees that are "reasonable and proportional to the actual cost" [24] of processing the transaction. The bill aimed to restrict anti-competitive practices and encourage competition, and included provisions which allow retailers to refuse to use credit cards for small purchases and offer incentives for using cash or another type of card.[14] The Durbin Amendment also gave the Federal Reserve the power to regulate debit card interchange fees, and on December 16, 2010, the Fed proposed a maximum interchange fee of 12 cents per debit card transaction,[25] which CardHub.com estimated would cost large banks $14 billion annually.[26] On June 29, 2011, the Fed issued its final rule, which holds that the maximum interchange fee an issuer can receive from a single debit card transaction is 21 cents plus 5 basis points multiplied by the amount of the transaction.[27] This rule also allows issuers to raise their interchange fees by as much as one cent if they implement certain fraud-prevention measures.[27] An issuer eligible for this adjustment, could therefore receive an interchange fee of as much as 24 cents for the average debit card transaction (valued at $38),[27] according to the Federal Reserve. This cap—which took effect on October 1, 2011, rather than July 21, 2011, as was previously announced—will reduce fees roughly $9.4 billion annually, according to CardHub.com.[26] As a result of the government limiting their revenue from interchange fees, banks made plans to raise account maintenance fees to compensate.[28] The New York Times published a comparison of the two bills prior to their reconciliation.[29] On June 25, 2010, conferees finished reconciling the House and Senate versions of the bills and four days later filed a conference report.[1][30] The conference committee changed the name of the Act from the "Restoring American Financial Stability Act of 2010." The House passed the conference report, 237--192 on June 30, 2010.[31] On July 15, the Senate passed the Act, 60--39.[32][33] President Obama signed the bill into law on July 21, 2010. http://en.wikipedia.org/wiki/Dodd-Frank