Federal Reserve Open Board Meeting, June 29, 2011

Uploaded by FedReserveBoard on 29.06.2011

CHAIRMAN BERNANKE: Good afternoon, everybody.
We're meeting today to review the final rule implementing the
Debit Card Interchange provision to the Dodd-Frank Act.
We're approaching the one-year anniversary of Dodd-Frank.
The Federal Reserve has been given substantial
and important new responsibilities under this act,
and we have been working diligently
to implement the statutory requirements under our purview.
The interchange rule we are considering this afternoon has
been one of our most challenging rulemakings
under Dodd-Frank to date.
We received well over 11,000 comments on our proposed rule.
We have taken the time needed to review these comments carefully.
They've been very helpful to us,
and the final rule reflects a number
of changes suggested by the commenters.
I believe the final rule that we will discuss today gives careful
and appropriate consideration to the statutory language,
the cost data available to us, and the complexities
of the debit interchange payment system.
The Board plans to monitor developments
in the debit card market on an ongoing basis.
That monitoring will include collecting
and publishing data related
to debit card costs and interchange fees.
These data will help the Board, as well as issuers both large
and small, merchants, networks, consumers,
and Congress assess whether the statute
and the rule are effectively accomplishing their
intended goals.
I know that staff has spent significant time and effort
on this rulemaking, and I want to commend them
for their hard work and dedication.
Let me now turn to Vice Chair Janet Yellen,
who chairs the Board's committee on Payments, Clearing,
and Settlement, the committee
which has reviewed the staff's proposal.
Janet. VICE CHAIR YELLEN: Thank you, Mr. Chairman.
Debit cards are a critical component
of the nation's retail payment system.
They're an efficient form of payment
and provide many benefits to both cardholders and merchants.
Over the past decade, consumers have substantially changed their
methods of payment and are increasingly using debit cards
where they once relied on checks or credit cards.
Debit cards are accepted
at about 8 million merchant locations in the U.S.,
and have become by a wide margin the most prevalent form
of noncash payments in this country.
Board staff projects that U.S. debit card volume may exceed 50
billion transactions this year,
and recent annual growth continues to be
at double-digit rates.
The debit card success story has been marred by the level
of discord between merchants and issuers
on the interchange fee issue, which has played
out in the courts, in the Congress,
and more recently here at the Board.
The continued vitality
of the debit card system requires balancing
of the legitimate needs of depository institutions
that issue debit cards; merchants that accept them;
networks that process them; and, very importantly, the consumers
or the customers of both the banks and the merchants.
I hope that the banking industry, the retail industry,
and the card networks will work together
in a collaborative manner to ensure
that the debit card system
and card systems more broadly are designed in a manner
that best balances the needs of all parties.
I want to thank the staff who worked
so tirelessly on this rulemaking.
I believe their recommendations reflect a careful consideration
of the comments received and an appropriate implementation
of the statutory requirements.
I will now turn to Mark Manuszak, who will walk us
through the draft final rule.
I will be discussing the recommended final rule
for Regulation II, which covers debit card interchange fees
and routing, and implements Section 1075
of the Dodd-Frank Act.
The final rule has two main components.
First, it establishes standards
for assessing whether debit card interchange fees
that issuers may receive are reasonable and proportional
to the cost to issuers.
Second, it prohibits network exclusivity
and merchant routing restrictions.
Since the release of its proposal last December,
the Board has received input from more
than 11,000 commenters, including issuers, merchants,
consumers, payment card networks, acquirers, processors,
trade groups, government agencies,
and members of Congress.
These commenters raised numerous and often complex issues related
to all facets of the proposed regulation.
We've carefully considered the issues raised by the commenters.
The comments have provided valuable input
into our rulemaking process and have led to a variety
of revisions to the proposed regulation.
I will provide a brief description
of the comments received on each aspect
of the proposed rule in my presentation.
Let me now turn to the substance of our recommended final rule.
I will summarize each major statutory requirement,
the approaches to implement each requirement
in the proposed rule,
and comments received on the proposal.
For each statutory requirement,
I will then describe our recommended final rule.
In developing our recommended final rule,
we considered the comments received; the language
and purpose of the statute; the available data;
and the practical results
of various interpretations of the statute.
The first major aspect
of the final rule is the interchange fee standards.
The statute requires the Board to establish standards
for assessing whether the amount of any interchange fee
that an issuer receives
for a debit card transaction is reasonable and proportional
to the issuer's cost with respect to the transaction.
Based on exemptions contained in the statute,
the standards do not apply
to certain government-administered debit
cards; certain other prepaid cards;
or debit card issuers that, together with affiliates,
have assets less than $10 billion.
In the proposed rule, the Board invited comment
on two alternative standards
for assessing debit card interchange fees.
Under the first alternative, an issuer would comply
with the standard if it receives an interchange fee
that does not exceed the lesser
of its allowable costs and a cap.
An issuer could also comply with the standard
by receiving an interchange fee
that does not exceed the level of a safe harbor.
The proposal recommended that the cap initially be set
at 12 cents per transaction with a safe harbor set
at 7 cents per transaction.
Under the second alternative, an issuer would comply
with the standard as long
as it does not receive an interchange fee above a cap,
again recommended to be 12 cents per transaction.
For both alternatives,
the proposal defined the allowable costs
to be the average value of an issuer's costs of authorizing,
clearing, and settling transactions that varied
with the number of transactions performed by the issuer
over a calendar year-in other words, the average variable cost
of authorization, clearance, and settlement.
The values of the cap in both alternatives and the safe harbor
in the first alternative were derived
from information gathered through a survey
of covered debit card issuers
that the Board conducted last fall.
The Board received numerous comments about all aspects
of the proposed standards,
including the proposed definition of allowable costs
and the two implementation approaches.
Issuers and networks overwhelmingly supported
expanding allowable costs to include a wider range
of debit card-related costs beyond the variable costs
of authorization, clearance, and settlement.
Among the costs these commenters argued should be included were
fixed processing costs, network fees, and fraud losses,
as well as the costs of card production, customer inquiries,
rewards, and accounts set up in maintenance.
These commenters noted
that debit cards provide a valuable payment guarantee
to protect merchants against insufficient funds
in a cardholder's account, and that issuers are exposed
to the risk of fraudulent debit card transactions.
In contrast, merchant commenters overwhelmingly supported the
proposal to limit allowable costs
to the average variable cost of authorization, clearance,
and settlement for each transaction.
These commenters argued
that other debit card-related costs either would not be
recouped by a check writer's bank from a merchant's bank
in a check transaction or are not specific
to a particular debit card transaction.
They further argued that the payment guarantee
in a debit card transaction is not really a guarantee
as merchants are frequently subject to charge backs
after the initial transaction and,
as a result, bear fraud losses.
After carefully considering the comments submitted,
staff recommends that a somewhat broader range of costs
that are directly related
to affecting particular electronic debit transaction be
included as a basis
for establishing the interchange fee standard.
The statute instructs the Board not to consider costs
that are not specific to a particular transaction.
We have interpreted this provision to exclude costs
that a debit card issuer would not incur in the course
of affecting any electronic debit transaction,
such as corporate overhead; general account costs;
and general debit card program costs, including marketing,
research and development,
and card production and delivery costs.
The remaining costs would include those
that the statute explicitly instructs the Board to consider,
namely, the incremental cost of authorizing, clearing,
and settling a particular transaction,
as well as other costs that the Board may consider
because they're occurred in the can course
of effecting an electronic debit transaction.
Of these other transaction costs, we recommend that,
in addition to the costs allowed under the original proposal,
allowable costs include network processing fees
and other transaction processing costs, such as the costs
of network connectivity and the cost
of processing equipment and software.
In addition, we recommend that costs
of transaction monitoring be included as an allowable cost
because these activities are integral
to the authorization decision.
We further recommend that a portion
of fraud losses be incorporated as an allowable cost
because issuers may incur losses for fraud
that they cannot prevent.
Allowing a portion of fraud losses to be recovered
through interchange fees will not eliminate the incentive
for issuers to monitor and prevent fraud.
Because the cost of fraud losses varies with the amount
of the transaction, we believe
that fraud losses are best incorporated
through an ad valorem component
in the interchange fee standards.
Turning to the implementation approaches, numerous issuers,
their trade groups, networks, and individuals objected
to the fee limits embodied in the cap under both alternatives
and the safe harbor under the first alternative.
However, many of these commenters recognized the
administrative appeal of a cap or a safe harbor
and acknowledged that a pure issuer-specific standard would
be difficult to implement and enforce.
Although many issuers argued against both alternatives,
a significant number preferred alternative two,
the standalone cap, over alternative one,
the issuer-specific framework with a safe harbor and a cap,
due to the second alternative's ease of compliance.
However, many of these commenters suggested raising the
cap value to reflect an expanded definition of allowable costs
and to cover the costs
of a larger percentage of covered issuers.
Merchants uniformly supported alternative one
as being the most consistent with the statute.
Merchant commenters generally preferred a more issuer-specific
approach because issuers would receive interchange fees tied
to their actual respective costs, although some
of these commenters acknowledged that a cap
or a safe harbor would make the interchange fee structure
simpler for merchants to understand,
which could increase transparency.
However, they advocated a lower safe harbor value,
arguing that a higher safe harbor would allow a large
fraction of covered issuers to receive interchange fees
above their actual allowable costs.
Similarly, merchants generally supported a lower cap
to discourage issuers from incurring and being compensated
for excessively high costs.
We believe that the best reading of the statute's reference
to "an issuer" and "a transaction" is
to interpret those terms to refer to a representative issuer
and a representative transaction rather than a specific issuer
and a specific transaction.
An approach based on a more specific reading
of those terms would be virtually impossible,
as an issuer's actual costs for each specific transaction,
which may vary, cannot be ascertained at
or before the time the issuer receives the interchange fee.
Therefore, with respect to the implementation approach,
we recommend that the final rule adopt a modified version
of the second alternative in the proposed rule-that is,
a standalone cap applicable to all covered issuers.
Under the final rule,
the maximum permissible interchange fee would be the sum
of a base component and an ad valorem component.
We recommend that the base component per transaction be set
at 21 cents, which corresponds
to the 80th percentile issuers' average-per-transaction
allowable costs as reported
in the Board's survey of covered issuers.
We further recommend that the ad valorem component be set
at 5 basis points of the transaction value,
reflecting the median issuers' fraud losses
as reported in the same survey.
Each covered issuer would be permitted
to receive an interchange fee that did not exceed the sum
of these two components without demonstrating
that issuer's actual per transaction allowable costs.
With respect to the statute's requirement
that the interchange fee be reasonable and proportional
to the cost of the issuer,
we believe that the cap delineates the separation
between a reasonable fee and a fee that is not reasonable.
Moreover, because the cap is based on certain costs incurred
by covered issuers for effecting particular electronic debit
transactions, the standard ensures
that fees are proportional to those costs
as required by the statute.
These interchange fee standards would be effective
on October 1, 2011.
The final rule also contains provisions
that prohibit circumvention or evasion of the standards.
The statute authorizes the Board to allow for an adjustment
to an interchange fee, to account for an issuer's costs
in preventing fraud, provided the issuer complies
with standards established by the Board related
to fraud prevention activities.
The proposed rule did not include a specific adjustment
to the amount of interchange fees
for an issuer's fraud prevention costs.
Instead, the proposal requested comment
about two broad approaches
to designing fraud prevention standards.
The first focused on general fraud prevention activities
and costs.
The second focused on recouping only costs related to new
or substantially improved fraud prevention technologies.
Although commenters did not uniformly favor either
of the approaches presented in the proposal,
they generally agreed that the Board should not mandate use
of specific technologies.
Merchant commenters favored a requirement
that an issuer adopt technologies
that would demonstrably decrease fraud in order
to be eligible for the adjustment.
In contrast, issuers and payment card networks preferred a
nonprescriptive approach
that would allow issuers the flexibility necessary
to tailor their fraud prevention activities
to address most effectively the risk faced
by the issuer associated with changing fraud patterns.
We believe that the dynamic nature
of the debit card fraud environment requires standards
that permit issuers to determine the best methods to detect,
prevent, and mitigate fraud losses for the size and scope
of their debit card program and in response
to frequent changes in fraud patterns.
As a result, we recommend
that the Board issue an interim final rule with a request
for comment that bases eligibility
for the fraud prevention adjustment on general standards
for an effective fraud prevention program rather
than prescribing specific measures or technologies.
The general standards would require an issuer
to establish policies and procedures reasonably designed
to maintain an effective fraud prevention program.
As in the case of the interchange fee standards,
we considered a variety of approaches
for implementing the fraud prevention adjustment.
We recognize that both issuers
and merchants make substantial investments in fraud prevention,
and the statute does not require the Board to set an adjustment
so that each issuer fully recovers its fraud
prevention costs.
As a result, we recommend
that the fraud prevention adjustment be implemented
through an addition to the cap applicable
to all covered issuers.
Based on information about fraud prevention costs gathered
through the Board's survey of covered debit card issuers,
we recommend that the Board permit a fraud prevention
adjustment of no more than 1 cent per transaction,
which is based on the median issuers' fraud prevention costs
as reported in the survey less the costs
of transaction monitoring that were included
as an allowable cost
in determining the interchange fee standard.
When combined with the maximum permissible interchange fee
under the interchange fee standard,
a covered issuer eligible
for the fraud prevention adjustment could receive an
interchange fee of up to approximately 24 cents
for the average transaction.
As suggested by virtually all commenters,
the fraud prevention adjustment would be effective
on the same date
as the interchange fee standard, October 1, 2011.
We may recommend that the Board make revisions to the adjustment
as appropriate at a later date
after we consider the comments received.
In addition to rules related to interchange fees,
the statute requires the Board to prescribe rules related
to the routing of debit card transactions.
First, the Board must adopt rules that prohibit issuers
and payment card networks from restricting the number
of networks on which a debit card transaction may be
processed to fewer than two unaffiliated networks.
Second, the Board must adopt rules that prohibit issuers
and networks from restricting the ability of merchants
to route debit card transactions over any network
that may process such transactions.
These provisions apply to all issuers, including small issuers
and certain prepaid card programs that are exempt
from the interchange fees restrictions.
The proposed rule included two alternatives
for implementing the prohibition
on network exclusivity arrangements.
Alternative A would require a debit card transaction
to be able to be routed over at least two unaffiliated networks,
of the authentication methods enabled on the card.
Alternative B would require a debit card to have
at least two unaffiliated networks for each method
of authentication available to the cardholder.
Under either alternative, issuers
and payment card networks would be prohibited
from restricting merchant routing choice among the
networks enabled on a card.
Issuers and payment card networks universally preferred
alternative A, which they believed was more consistent
with the statutory language,
would impose less severe operational burdens,
and would not have as large a negative effect
on the development of new authentication methods.
Merchant commenters universally preferred alternative B,
which they believed would provide the broadest merchant
routing choice, including for transactions
that currently cannot use PIN-based authentication,
such as many online transactions.
Merchants also believe that this alternative would not require
substantial operational changes for issuers and networks.
We recommend that the final rule adopt alternative A with respect
to the network exclusivity provisions.
The recommended final rule requires two unaffiliated
networks to be enabled on each debit card without regard
to authentication method.
Under the final rule, an issuer could comply
by having one signature network
and one unaffiliated PIN network or, alternatively,
two unaffiliated PIN networks
or two unaffiliated signature networks enabled on a card.
We believe that this approach is consistent with the statute,
which prohibits issuers and payment card networks
from restricting the number of payment card networks
on which a debit card transaction may be processed
to fewer than two unaffiliated networks.
Moreover, the statute does not require
that there be two unaffiliated payment card networks available
to the merchant for each method of authentication.
We further believe that this approach would minimize the
compliance burden on institutions,
particularly small issuers;
would present less logistical burden
on the payment system overall; and would be less likely
to limit the development and introduction
of new authentication methods.
The statute does not establish an effective date
for the network exclusivity and routing provisions.
Under the final rule, the prohibition
on network exclusivity arrangements would be effective
on April 1, 2012, with respect to issuers; and October 1, 2011,
with respect to payment card networks.
The final rule includes a delayed effective date
for certain prepaid cards that may face technological
or operational difficulties with complying by April 1, 2012.
If the effective date for the prohibition
on merchant routing restrictions,
which prohibits an issuer or network
from restricting merchant routing choice,
would be October 1, 2011.
This earlier effective date will enable merchants
to take advantage of enhanced routing flexibility for cards
that already carry multiple unaffiliated networks.
My colleagues and I would be happy
to answer any questions you have.
CHAIRMAN BERNANKE: Thank you very much,
and thanks to the staff again for a tremendous amount of work
on this very challenging rule.
We've been talking a lot about issuers
and merchants and networks.
But, of course, the ultimate beneficiary-we hope-is
the consumer.
How do you think this rule will affect consumers?
ROBIN PRAGER: So-I'll answer that question-it's very hard
to predict the effect that the rule will have on consumers
because the effect is going to depend on the actions taken
by various participants
in the payment-in the debit card system.
On one hand, card issuers are likely to implement changes
in response to the reduction interchange fee revenue
that may be harmful to consumers.
This might involve raising fees or reducing benefits
for debit cards or for deposit accounts more generally.
Although the staff thinks it's unlikely
that issuers would actually impose fees
on debit card transactions, per se,
or engage in other activities that are designed
to steer their customers away from using debit cards,
we would expect that at least some card issuers would change
some terms facing their account customers, such as reducing
or eliminating benefits, rewards associated with debit cards;
perhaps imposing certain fees
on deposit customers more generally; or reducing benefits
on deposit customers more generally.
At the same time, the rule's likely to lead to a decrease
in merchants' costs of debit card acceptance,
which could be passed on to consumers
in the form of lower prices.
The extent to which these savings do get passed
on will depend on the competitiveness of the markets
in which the merchants operate.
Merchants who operate in highly competitive markets
with low margins are likely to pass on substantially all
of those savings to their customers.
Merchants in less competitive markets may keep a larger
portion of that savings for themselves.
If merchants continue their current practice
of not marrying prices with payment method,
any savings that do get passed on will be shared
by all consumers, regardless of whether they pay by debit cards
or other forms of payment.
So, on that, the effect on any individual consumer is going
to depend on their payment behavior-do they use debit cards
or not-on the competitive of merchants
with whom they do business; on any changes
in merchant acceptance of various payment card methods;
and on the banks' reactions in terms
of how they adjust any account terms.
So it's very hard to predict how any individual consumer will be
affected and, in aggregate, how all consumers will be affected.
There are benefits and costs, and we can't really say
in advance how those are going to play out.
One of the differences-one of the most importance differences
between this rule and the preliminary rule is the expanded
set of costs that you are allowing
in calculating interchange fees.
Can you talk about how you decided
which costs would be included
and maybe what the legal reading is that supports that?
STEPHANIE MARTIN: So let me try and answer that one.
We first focused on the statute prohibits the Board
from considering, and those were costs that are not specific
to a particular debit transaction.
And as Mark alluded to in his presentation,
that would include corporate overhead,
audit and legal department,
HR department, those kinds of costs.
So what the Board is allowed to consider
under this statute are the costs that are specific
to particular debit card transactions.
And those would include the costs that the Board proposed
to permit as allowable costs; the incremental costs
of authorization, clearance, and settlement, which the statute,
in fact, requires the Board to consider; but then a range
of other costs that are also specific
to particular transactions.
And some of-we considered those, and we looked
at the data we had on those.
And some of those are included
in the final rule, and some are not.
So, for example, fixed costs of software,
hardware that goes towards affecting a particular
transaction, those are included in the proposed fee standard.
Other costs such as rewards, customer inquiries, arguably,
those are particular to specific transactions.
But for the reasons we laid out in the Federal Register notice,
those were not included in the interchange fee standard.
Thank you.
Vice Chair?
VICE CHAIR YELLEN: Thank you, Mr. Chairman.
Mark noted in his presentation
that the proposed interchange fee standard has
to meet the statutory requirement that the amount
of interchange fee standard be reasonable
and proportional to an issuer's costs.
I noted in looking through the public comments that a number
of commenters indicated that, in rate-makings
for public utilities, the interpretation
that would typically be given to the term
"reasonable" would include some markup to allow
for a fair rate of return.
And I wondered whether or not this was something
that you've thought about, if you decided how
to interpret reasonable and proportional.
STEPHANIE MARTIN: So getting back to the costs
that the Board is prohibited from considering,
those would be costs that are not specific
to a particular transaction.
So a rate of return overall
on your debit card program is difficult to attribute
to a particular transaction.
I would also say that many of the rate making cases use a term
of art, "just and reasonable rates."
Here we have a different term here: reasonable
and proportional to cost.
So we looked at those two terms and thought, you know,
if Congress wanted us to rely on rate making jurisprudence,
they could have used that term of art.
And they did not.
So we were interpreting it differently.
Thank you very much.
One other question is I wonder if you'd talk a little bit
about what impact you think this rule is likely to have
on innovation in the payment system more broadly.
I noted some commenters were concerned that this is a rule
that could inhibit innovation, and I wonder if you agree
and what your perspectives are.
MARK MANUSZAK: So we did receive a lot of comments
that expressed concern about the potential effect
of the rule on innovation.
And these commenters would note things like the effect
on the development of new authentication methods,
which would be like biometrics, or new form factors,
which would be things like mobile payments,
or new fraud prevention technologies.
And so there were commenters that expressed concern
that the rule in certain forms could inhibit the development
of new technologies.
There were also commenters, however, who wanted the rule
to be applied evenly across new as well as existing technologies
in order to create a level playing field so as not
to advantage one type of technology over another.
And we recognize the importance of having a vibrant
and innovative payment system.
We also recognize the importance
of establishing basic ground rules
that create a level playing field
across different types of technologies.
And so, ultimately, the final rule does not generally exempt
innovative technologies from the provisions of the rule,
and we think that this does establish the level playing
field that some of the commenters were looking for
and also creates regulatory certainty
for potential innovators going forward.
At the same time, we recognize that certain aspects
of the rule could have an effect on innovation
because future innovators will have
to develop their technologies recognizing the restrictions
in the rule.
And that is going to impact the types of technologies
and the way in which they develop those technologies.
But there's certain features of the recommended final rule
that should have something of a mitigating effect
on those negative effects on innovation.
So, for example, in the exclusivity portion of the rule,
we're not requiring multiple networks associated
with each authentication method, so this should help
for the development of new authentication methods
where an innovator does not have to open up the technology
to additional parties.
And similarly in the fraud prevention adjustment,
we are not using a technology-specific standard.
So there will not be any dictates
about what technologies are or are not acceptable,
and the market can develop the technologies
that are most effective.
So ultimately we think there will be an effect inevitably
on innovation as innovators have
to meet the restrictions associated with the rule,
but certain aspects of the rule should help
to mitigate some of those effects.
And we also believed that it was important
to establish consistent ground rules across new
and existing technologies.
Governor Duke.
GOVERNOR DUKE: Thank you, Mr. Chairman.
Following up on the Chairman's question about impact
on consumers, other countries have implemented restrictions
on interchange fees.
Could you talk a little bit
about the experience they're seeing with respect
to account holder fees, savings passed on by retailers,
changes in discounts for different methods of payment?
So there are two types of scenarios
that I think one could look at when looking at other countries.
One would be places where there has been a government
intervention to lower interchange fees.
The second would be countries
in which they have a payment card system
that has historically had low or zero interchange fees.
And it generally can be hard to draw conclusions
about the effect of interchange fees on the outcomes
for consumers, banks, and the payment card networks
because there are a lot of moving parts,
and the data can be very noisy.
But I think there are a couple of general conclusions
that one can draw by looking
at the case studies in other countries.
One is that, in response to a change in interchange fees due
to a government intervention, there often are changes
in account terms for cardholders.
So, for example, in Australia, when the Reserve Bank
of Australia lowered credit card interchange fees
in their particular case,
rewards for many cards went away, and certain account fees
and other terms got somewhat less attractive from the point
of view of the consumers, as Robin was sort of suggesting.
So a first lesson would be
that there generally is some adjustment in terms
of the account terms for cardholders.
But at the same time, the evidence doesn't suggest
that having a high interchange fee is necessary
for the debit card or the payment card system
to function effectively.
So, again, in Australia,
when they cut their credit card interchange fees,
banks continued to offer the credit cards,
and consumers continued to use them.
And similarly in Canada, where there is no interchange fees
on PIN debit transactions, PIN debit remains an important part
of the deposit relationship between banks and consumers.
And consumers continue to widely use debit cards,
and they're widely expected.
So I think we will expect there to be some adjustment in terms
of the fees, but we wouldn't necessarily expect
to see a significant contraction in the supply of or demand
for debit card services based on the evidence in other countries.
Now, in terms of the effect of the interchange fee regulation
in other countries on prices,
that can manifest itself in two ways.
First is in terms of the merchant discounts
that merchants receive-or pay.
I'm sorry.
And I think there is evidence that many of the decreases
in interchange fees are passed through in merchant prices
or in merchant discounts.
The evidence for consumer prices is much weaker because there are
so many factors that are buffeting consumer prices
that there's not been strong evidence documenting
that any decreases in interchange fees
and subsequent decreases in merchant discounts are passed
through in terms of lower consumer prices
at the point of sale.
GOVERNOR DUKE: If after the implementation
of this rule you were to, a couple years from now,
try to determine what the impact had been on the consumer here,
are there any authorities that you would need to collect data
that you don't have today?
LOUISE ROSEMAN: Well, we currently
under the statute have authority to require PIN card networks
and issuers to provide us information,
particularly information that is helpful for us
in establishing the interchange fee standards.
It doesn't explicitly give us the authority to require
that merchants, for example,
would give us information or other parties.
But we can have surveys that they can voluntarily comply
with in terms of providing us that information.
GOVERNOR DUKE: Thank you, Mr. Chairman.
CHAIRMAN BERNANKE: Governor Tarullo.
Thank you.
Governor Raskin.
Thank you, Mr. Chairman.
Looking at the-at how issuers' cost accounting systems capture
cost data, I'm wondering whether there are any external sources
of cost estimates that were used in crafting the regulation
that would serve as a way to cross-check
against the information that the staff saw that came from-came
from the surveys put out by the Fed.
MARK MANUSZAK: So we didn't explicitly use any external cost
data to develop the standard.
We used the data that we gathered through our survey
of debit card issuers.
But having said that,
we did look at various external cost studies associated
with issuer costs.
And there are various problems with doing a survey
of issuer costs including, as you mentioned,
the cost accounting systems can differ a lot across firms.
And in addition, whether or not a firm outsources things
to a third party or does things in-house may affect their
ability to identify certain types of cost components.
And finally, we recognized
as we were performing the survey the incentive effects associated
with reporting for respondents who are engaged in the type
of exercise that we're looking at,
we were examining the relationship
between costs and fees.
But when we did look at those external studies,
which have been performed by consultants and processors
and payment card networks, the numbers that they got
for issuer processing costs were largely comparable
to what we received from our survey.
There are caveats associated with that
in that they didn't survey the same issuers that we surveyed.
We don't have their data, so the level of granularity in terms
of the distribution of issuer costs,
we don't know how well that compares.
But at least it's sort of an aggregate level.
Their estimates are largely comparable to what we got,
which makes us think that our numbers are not radically off
or that the surveys were not radically misreported
in our formulation.
Thank you.
At this point, I'd like to hear positions.
Let me start with you, Vice Chair.
VICE CHAIR YELLEN: Thank you, Mr. Chairman.
I support adoption of the proposed final rule
on debit card interchange fees and routing,
and the interim final rule on the fraud prevention adjustment.
I want to commend and thank the staff
for the painstaking effort they've invested
in preparing this final rue.
Importantly, staff carefully analyzed over 11,000 comments
that were received, and these comments raised important issues
relevant to the appropriate interpretation
and implementation of the Durbin Amendment.
They were extremely helpful in guiding the revision process,
and, in particular, as Mark mentioned,
significant changes have been incorporated in the final rule
in response to the comments received.
In crafting the final rule,
staff carefully assessed the legal requirements governing our
rulemaking under Section 1075 of Dodd-Frank
and to the extent possible also considered the likely economic
impact that would result
from alternative implementation choices.
The final rule carefully adheres to Congress's mandates relating
to network exclusivity and routing, and to its direction
to establish standards for assessing whether the amount
of any interchange transaction fee that an issuer may receive
or charge with respect
to an electronic debit card transaction is reasonable
and proportional to the costs incurred by the issuer
with respect to the transaction.
The final rule strives to ensure that issuers retain incentives
to reduce operating and fraud costs over time.
And it aims to avoid consequences
that could be deleterious to the future development
of the payment system.
A long-held goal of the Federal Reserve has been
to facilitate a transition from a payment system reliant
on paper check and cash to more efficient
and convenient electronics-based technologies.
Debit cards have certainly helped speed that transition.
In designing this rule, staff have recognized the importance
of establishing an environment that will be conducive
to continued innovation in the payment system
in the years ahead, one that's receptive to the adoption
of promising new technologies.
They further sought to establish a standard
that will be transparent; minimize compliance costs
for banks and networks;
and reduce the burden on supervision.
The legislation directing this rulemaking was motivated in part
by the fact that interchange fees
in the United States have increased substantially
over time; whereas, in those countries
where interchange fees have starkly been low
or have been limited by government intervention,
the use of debit cards has remained robust.
This escalation in U.S. interchange fees may well
reflect a market failure.
Economic theories suggest, however, that the determination
of prices in two-sided markets
like the debit card market are complex,
involving important network and usage externalities.
It is therefore challenging to craft regulations
that will predictably improve social welfare.
The literature recognizes that networks are valuable
because they can serve to reduce transactions costs
and that pricing and strategy
in such two-sided platforms will be influenced
by these network affects.
Our Federal Register notice provides economic analysis
pertaining to the costs and benefits of the proposed rule
for the key effected groups: merchants;
large and small financial institutions; and banks
and unbanked consumers.
The analysis notes that the ultimate welfare effects are
impossible to ascertain in advance.
The impact of the rule will depend
on the behavioral responses of all affected parties:
how covered issuers respond to the reduction in revenue
from lost interchange fees and their pricing
and product offerings; how consumers respond
in their choice of payment methods;
how the networks differentiate interchange fees between covered
and uncovered issuers; whether merchants pass
through to consumers any interchange fee cost reductions;
and how market participants more generally respond
to the interchange fee network exclusivity
and routing provisions, which could affect pricing
and competition throughout the broader retail payments market.
This response cannot be easily predicted based
on existing information.
Because this rule will touch the lives and affect the livelihoods
of consumers, businesses, and financial institutions large
and small, as well as the evolution of the payment system,
it will be important for all of those interested
in sound public policy to study and carefully assess the impact
of this rule on the well-being of the affected groups,
and the efficiency and dynamics
of the payment system in the years ahead.
Governor Duke.
GOVERNOR DUKE: Thank you, Mr. Chairman.
I want to start by acknowledging the quantity and the quality
of work that's gone into this proposal.
In both the initial proposal and the final rule,
the staff has demonstrated the comprehensive understanding
of the structure and economics of debit interchange
that they've gathered from surveys
and numerous conversations with market partners.
In addition, the individual members
of the team brought their own experience, knowledge, insight,
creativity, and, perhaps most importantly,
patience as they worked through the countless alternatives
and debated the merits of various approaches.
This has not been an easy law to implement.
But I believe that every effort has been made
to choose carefully from among the implementation schemes
that were possible under the statute.
Issuers, networks, merchants, consumers, other regulators,
and members of Congress commented forcefully,
passionately, and voluminously.
On nearly every aspect of the proposal,
the comments received were often
in diametric opposition to one another.
As I read through each section of the discussion
in the final rule, I concluded
that the final decisions reflect thoughtful attention
to the positions argued by all sides.
I'd like to comment on the sections on standards,
network exclusivity, exemptions, and the anticipated effects
of the rules on various parties.
With respect to standards, we first had to address
which costs should be included or excluded
in determining whether the interchange fee was reasonable
and proportionate to costs.
Within the costs determined to be relevant
in establishing the cap, we had a determine
where to draw the line.
While there will always be room for argument,
I believe the costs included
in the approach taken is reasonable.
Further, I believe the discussion
to follow alternative two, the establishment
of a cap, is the best approach.
While recognizing that of the alternatives,
it's the furthest away from the relationship
between an individual issuer's costs
and the fee it would receive, I think that it is permitted
by the statute and that the advantage of simplicity
and transparency will lead to more effective implementation.
Establishing a cap below which issuers can earn profits
or cover other costs creates an incentive to reduce costs,
which could then translate to lower caps
as the amount is recalibrated with updated information.
In establishing rules governing network exclusivity,
I believe the choice of alternative A, the requirement
that cards be enabled with at least two unaffiliated networks
without regard to authentication method, is the correct option.
I believe it meets the requirements of the statute
in a way that is less complicated and costly
to implement than having two networks
for each authentication method.
It also accomplishes the objective of the provision,
which is to change the competitive dynamic
for payment networks by allowing merchants
to choose the lowest cost routing available.
And, finally, it's the most conducive to innovation
as it would not require pioneers of new authentication methods
to wait for a second competing network to become available.
It is when I think about issuers that are exempt
from debit interchange standards that I run
into problems with this rule.
The statute exempts three types of issuers:
financial institutions with combined assets of less
than $10 billion;
government-administered programs;
and reloadable general purpose prepaid cards not marketed
or labeled as gift cards.
We received numerous comments expressing concern
that the exemption would not be effective in practice.
I agree with this concern.
Indeed, when I asked about the exemption
at our previous board meeting on this issue,
the staff acknowledged that there was no way
to know whether the exemption would be effective.
The staff pointed out then and in the final rule
that the statute and rule permit but do not require the networks
to establish higher interchange fees for exempt issuers
than for covered issuers.
While we have received information
from some networks indicating they plan to provide
for different fee structure for exempt issuers, we have no way
to know if or how this will work, and we have no authority
to enforce such a structure.
I applaud the decision to provide networks with lists
of small-of exempt small issuers in an effort
to save the small issuers the administrative cost
of proving their exemption.
However, the other method whereby we plan
to promote the exemption seems just as likely to work
to reduce the incentive to offer different rates
to exempt issuers as to create such an incentive.
We plan to survey issuers and networks,
and publish annually a list
of the average interchange fees each network provides
to its covered and exempt issuers.
This information could enable exempt issuers
to find the network that offers the most favorable rates.
But it could just as easily leave merchants and acquirers
to route away from those networks.
So what are the consequences to exempt issuers
if the exemption proves not workable in practice?
For small issuers, the result is a significant increase
in regulatory burden, if you define as I do regulatory burden
as the cost or loss of revenue resulting
from regulatory action.
Ironically, small issuers may be held by the market
to an interchange fee that is targeted to be reasonable
and proportional to the cost incurred by larger institutions.
But because they were exempt, the costs incurred
by smaller institutions were not even considered
in setting the standard.
I believe that the reason Congress exempted small issuers
was a desire not to impose this burden on them.
But we have so far not found any authority that would act
to enforce the exemption
or any remedy should the exemption not work in practice.
Similarly, the exemption may not work
for government-administered programs or prepaid cards.
Even though I'm concerned about the impact
on small institutions, I do recognize
that small institutions can offset the cost
by charging higher customer fees for debit cards,
checking accounts, or other services.
Debit cards issued by financial institutions are not a
standalone service, but rather one of many methods
of accessing a checking account.
In contrast, cards issued in connection
with government-administered programs
and prepaid cards are standalone services.
For these prepaid cards, the reduction
in revenue can only be offset, and the profit required
to incent their issuance in the first place can only come
through fees charged through the government entities
administering the programs or the cardholders using them.
In a time of austerity at every government level,
a time when governments,
including the federal government,
are issuing benefits electronically to save the cost
of issuing paper checks, it seems unlikely that governments
who contract for card services will be in a position
to absorb the additional cost,
so most of the fees will likely fall
to the beneficiaries who use the cards.
Moreover, if the exemption cannot be realized anyway,
the incentive to prepaid card issuers not
to charge overdraft fees and to allow a single free withdrawal
from the issuers' ATMs in order to qualify
for the exemption will be negated.
I read with great interest the section concerning anticipated
effects of the rule on various parties.
I also read a number of studies on the impact
of interchange regulations imposed in other countries.
Could not find, however,
any study of another country's experience
that offered convincing evidence
as to the ultimate impact on consumers.
Similarly, our own discussion indicates
that we are unsure what those ultimate effects might be.
I would hope that in the future we would undertake a study
to quantify the overall effect of this rule on consumers.
And to the extent that we do not have the authority
to gather the data that would be required to conduct
such a study, I hope we will define and request
such authority from Congress.
Finally, I'd like to comment
on the one seemingly unavoidable impact of this rule:
higher fees on checking accounts.
One of my first projects in banking was the study
of checking account products
and specifically the elimination of free checking.
At that time, I was working for a community bank
that was contemplating service charges on checking accounts
to offset the likely interest expense associated
with now accounts, which were expected to be authorized
in coming legislation.
What I discovered in that study was that low-balance,
high-activity checking accounts were very expensive to process.
As we imposed service charges, we saw a reduction
in those smaller accounts and a corresponding reduction
in expense that was significant enough
to improve profitability even
if we generated no additional revenue from fees.
Years later as more and more banks brought back free
checking, it took me a while to figure out what had changed,
until I discovered that debit interchange fees had changed the
dynamic and made the low-balance,
high-transaction account profitable.
Now, even though I have reservations
about the workability of the small issuer exemption,
I have every confidence in the industry, and in small banks
and credit unions in particular, to find new product models
that restore profitability to the payments function
in checking account products that are central
to their businesses-just as I did so many years ago.
But the restoration of bank profitability is likely to come
at the expense of less availability
of low-cost checking accounts offered to consumers.
The experience of other countries would suggest
that overall usage of debit cards
for payments will not decline significantly
as a result of this regulation.
But as fees for checking accounts rise,
I would expect more consumers to turn to prepaid debit cards
or even cash as a lower cost alternative.
And I am concerned about the level
of consumer protection covering prepaid, reloadable cards.
Strengthening protections for these cards was
on the Board's agenda.
But the work required to implement other parts
of the Dodd-Frank Act, frankly, we couldn't get
to it before the time came
to transfer regulatory responsibility
to the Consumer Financial Protection Bureau.
I'm proud of all the rules we did propose and implement
in the last three years,
but I wish we could have done more on this front.
So I can only call on the CFPB to carefully watch developments
in this market and to place a high priority
on revisiting consumer protection issues
with prepaid cards.
Mr. Chairman, I'm appreciative of all the work that has gone
into this rule and I'm supportive
of much of the final result.
But given my conviction that the exemptions will not work
in practice, I cannot support the increased regulatory burden
on small issuers, and the higher cost imposed on issuers
and recipients of government benefits distributed
through prepaid cards that I believe will result
if we cannot find the way to make the exemptions effective.
For that reason, I oppose the final rule.
Governor Tarullo.
GOVERNOR TARULLO: Thank you, Mr. Chairman.
Let me begin by explaining the standard that I've imposed
on myself in judging the recommendation from the staff,
and I think it's a two-part standard.
First, as would be applicable in any action that we take
on proposed regulation,
the question is whether the proposal is consistent
with the intent of Congress as manifested
in the language of the statute.
But, second, I think we have to focus on the fact
that we are required to act here.
This is not a question of discretion on our part whether
to act, only how to act.
And so the second part
of my self-imposed standard was whether I have a concrete
alternative proposal that would better realize my own policy
preferences while also remaining consistent
with the statutory language.
With respect to the consistency of the proposed regulation
with the intent of Congress,
I believe that the staff proposal is consistent
with the language of the statute.
Now, it needs to be said that there's a good deal of ambiguity
in several of the key provisions of the statute, as discussed
in the draft Federal Register notice circulated by the staff
and as Mark alluded to in his presentation a few moments ago.
There are some possible readings,
such as one that would craft standards to make an assessment
on a transaction-by-transaction basis,
that would entail enormous levels of uncertainty
on the part of issuers, networks, and merchants alike
as to what fees were acceptable.
I think here and in other areas,
the staff has rightly opted instead for permissible readings
of the ambiguous provisions that accord more closely
with sound economic incentives and greater certainty
for all relevant actors.
Still, there are provisions whose language simply does not
admit of interpretations that some might have preferred
and for which there might be good policy arguments.
Mark mentioned and Stephanie did as well some of costs
that staff excluded, such as R & D expenditures,
not I think on economic grounds but just on the grounds
that statutory language would not admit
of that interpretation.
So that leads to the second part of my self-imposed standard,
which is whether I have a concrete alternative
that would better realize what I consider
to be sound policy positions while remaining consistent
with Congressional intent.
And I should say in this regard that I share a lot
of Governor Duke's concerns, particularly
about the effectiveness of the exemptions applied.
But while I share those concerns,
I don't have an alternative that is consistent with the language
of the statute that would better achieve the statutory aims.
And so I find myself in a position, I think,
as the staff did of focusing on what the staff proposal was.
And so I do support the proposed regulation
as presented by the staff.
Since the proposed regulation was issued,
the staff has done a heroic job of assimilating and summarizing
for us the over 11,000 comment letters-and, in fact,
I think when Louise writes her autobiography,
it's going to be titled 11,000 Comment Letters
[laughing]-responding to the questions we posed
at the public hearing on the proposed regulation
and modifying that proposal on the basis of all these comments
and questions so as to improve it substantially.
I'm sure-I'm positive-there are many merchants, issuers,
consumers, and networks which would want to change much
of what has been proposed, just as some of us
at the Board may want to do were this a matter
of our own preferences.
But it's not.
We have to act in accordance
with the language of the statute.
And so, again, it's on those grounds that I agree
with the staff recommendations.
Now, there is one matter
on which Congressional intent was quite clear,
and that was the desire to exempt small issuers
from the limits on interchange transaction fees imposed
by the statute.
Unfortunately, though,
the statute does not give us the authority necessary
to assure achievement of that aim.
There is reason to hope that the aim will be realized, again,
as explained in the Federal Register notice;
but it's by no means certain.
For this reason, Mr. Chairman,
I would like to propose a formal monitoring system by the Board
to evaluate how effective this exemption proves to be.
And actually, just for everyone's convenience,
I did have-I did write up this proposal, and, Penny,
if you could circulate it.
I won't spend a lot of time on it but I thought it was useful
for people to see the language.
What I basically ask is that,
by the end of six months following the effective date
of the rule and again by the end
of 18 months following the effective date of the rule,
that the Board staff should determine and report
to the Board, first, the extent
to which networks have established separate interchange
fee schedules for exempt and covered issuers; and, secondly,
with respect to networks that have established
such separate schedules, how the interchange fees received
by exempt issuers compare
with those prevailing before the rule became effective.
I think that's a relatively straightforward thing
for the staff to do based on the kinds of information
that we contemplated them gathering in any case.
The second part, though, of this proposed monitoring system will
take some more work and will require some expenditure of time
and resources beyond the kind of monitoring
that was contemplated.
And that would be that,
by the end of 18 months following the effective date
of rule, the staff determine and report to The Board
on three matters: first, changes
in exempt issuers' interchange revenues over this period;
second whether there's evidence
that merchants have rejected debit cards of customers
of exempt issuers; and, third,
how the network exclusivity provisions
from which these issuers are, of course,
not exempt have effected small issuer costs.
I recognize that the second and third
in particular will not be susceptible
to comprehensive study, but I think an effort
to gather some relevant information will be useful
for us, for the affected parties, and for the Congress
in assessing whether the intended exemption has been
effective in practice.
So, Mr. Chairman, I don't know how you want
to proceed with this.
I do not want this to be a formal amendment
to the proposal, obviously.
But in whatever way you'd like us
to consider it is fine with me.
CHAIRMAN BERNANKE: Well, I agree it shouldn't be a
formal amendment.
But what we should do is make it is a sense of the Board,
and instruct the staff to carry it out subject
to any feasibility issues that arise in the process.
Is that acceptable?
That's fine.
Thank you.
CHAIRMAN BERNANKE: So why don't we finish
with you, Governor Raskin?
And then, before we vote on the full rule,
I'd like to hear quick reviews
on Governor Tarullo's suggestion.
Governor Raskin.
GOVERNOR RASKIN: Thank you, Mr. Chairman.
Needless to say, the rulemaking process for this provision
of the Dodd-Frank Act has been enormously controversial.
Thousands of thoughtful comments have been submitted.
Limiting bills have been drafted and voted upon.
Speeches have been crafted.
Lawsuits have been filed.
Millions of lobbying dollars have been spent, and hundreds
of meetings have occurred.
Debates on the statutory provision, as well as debates
on the proposed rule, have been robust and,
at times, acrimonious.
I want to start by acknowledging also the work
of the exemplary multidisciplinary staff team
here who handled this work neither as a crawl nor
as a sprint but handled it as the marathon that it was.
They worked diligently and objectively and efficiently
to make sure that we fulfilled the statutory requirement set
out in the law.
It bears repeating that the law states
that the Board shall prescribe regulations,
and that mandate is what brings us here today.
We are not at liberty to say no
to what Congress has statutorily required us to do.
The staff has proceeded with the utmost of good faith
and considered a number of alternative formulations.
It has attempted in the face of ambiguous statutory language
to craft an implementing regulation that is
as close an approximation to Congress's intent
as is possible, to create a standard that is capable
of being complied with and capable of being examined for,
and that minimizes as much of the statutory language provided
by Congress allows, the possibility of adverse
or perverse economic incentives.
I also want to thank for the record all the entities
who have informed this rulemaking
through their submission of public comments.
I want to especially underscore my appreciation for comments
that are prepared for submission by groups and institutions
for whom the cost of preparing
such comments is a large part of their budgets.
One issue consistently raised in comments
and debates was the importance of ensuring
that financial institutions are reimbursed
for legitimate debit card costs.
This issue was a theme in comments from consumers as well
as comments from banks and credit unions.
The law provides for various costs to be included
in the calculation of the interchange fee.
In this final rule, while not inclusive of all costs,
is inclusive of a broader swath of costs
than was originally proposed.
This broad swath of costs,
according to the Federal Reserve Board survey of costs
and various private sector surveys of costs,
supports an interchange fee that is higher
than the initially proposed fee and permits a recovery of costs
by the vast majority of issuers of debit cards.
Because this interchange fee cap leans towards the inclusion
of all permissible costs, there's little justification
for this rule alone to be the basis for making those banks
and credit unions that operate efficiently less accessible
to low- and moderate-income consumers and communities.
The Federal Reserve, though, needs to continue
to play close attention to this possible result as well
as how the regulation affects the viability of small banks
and credit unions, which often provide safe,
lower cost financial products to millions of Americans.
As a former state bank and credit union commissioner,
I'm extremely sensitive to the potential impact
of the regulation on small banks and credit unions.
One virtue of the Board's final rule is
that it provides the ability
to watch whether a two-tiered price structure
by the networks is maintained or eroded, and to reexamine
and potentially reset the interchange standard.
Not only do we need to monitor the effectiveness
of the small issuer exemption, we need to keep our eyes focused
on the future of the evolution of payment methods
that currently are exempt from this law.
In particular, what will this rule mean in terms
of the development and usage of prepaid,
reloadable non-gift cards?
And from the perspective of the consumer, will different types
of payment methods provide Americans with the ability
to have their core financial needs met in our economy?
I want to underscore my colleagues' unease
with this kind of regulatory intervention.
Indeed, when a regulator has to intervene in a market
to better align pricing with costs,
that market must be somehow working less than competitively.
We didn't create this market.
We didn't craft the Durbin Amendment.
We're only doing what Congress has directed.
That said, it's no secret
that consumers have had significant concerns
about escalating debit and interchange fees.
By some estimates, those fees amounted to $16 billion in 2001
and stood at $48 billion in 2009.
These fees have a disproportionately harmful
effect on the 25 percent of the population that is unbanked
and other consumers that pay by cash and checks,
since those consumers never receive the benefits
of any card reward programs that are funded by interchange fees.
The Hispanic Institute has reported
that the bottom 50 percent of income earners pays
at least $669 million more in higher prices to subsidize
at least $554 million in payment card rewards.
So whether we ultimately disagree
on whether the manifestations
of this malfunction merits Congressional intervention,
it appears to me that we have no choice in this matter
but to adhere to Congress's directive,
even when the guideposts
for achieving its requirements are far from clear.
The staff's proposed rule is a worthy attempt at this mandate,
and I recommend it move forward.
CHAIRMAN BERNANKE: Thank you, Governor.
This was indeed a very difficult rule.
I think very few rules the Fed has ever written took more
person hours than this one and many, many difficult decisions.
And, again, I'm appreciative of the staff effort.
I think the final rule shows a lot of responsiveness
to the many comments that we received.
And I do think it's a good faith and carefully executed attempt
to implement the will of Congress
in setting these parameters.
Like a number of my colleagues, the concern I've had in terms
of achieving the intent
of Congress has been making the exemption
for smaller issuers effective.
Smaller issuers are not exempt
from the network exclusivity rule,
which means they are subject to the same competitive forces
that other issuers will be subject to.
And the Federal Reserve does not have the power
to require networks to maintain a two-tier pricing system.
I think the efforts we are going to make, though,
will give us the best shot at making that exemption effective.
And in particular, as described in more detail in the rule,
we have-we intend to set up a very transparent system
in which we will regularly publish the interchange fees
that networks collect from both exempt and nonexempt issuers.
And we will also monitor developments in these markets
as well as the effects of our regulations going forward.
So if it doesn't work, we'll know.
And then we can think about what else can be done.
I think it's encouraging that many networks have indicated
that they will maintain a two-tier system.
I very much hope that they will follow
through with their commitments and that those networks
who have not yet committed will consider doing so.
Again, given that I think this is the best available solution
that implements the will of Congress
and also makes good economic decisions-for example,
the use of a cap both simplifies supervision and also is best
for inducing cost minimization
by issuers-I will support the rule.
Let me go around quickly and ask my colleagues
if they have any questions or comments
on Governor Tarullo's proposed informal instruction to staff
and see what response is to that.
Vice Chair.
VICE CHAIR YELLEN: I'm supportive
of Governor Tarullo's proposal.
So, as we vote on this and as-as we vote on this rule,
then we will do that in the understanding
that we will continue to monitor various aspects
of the interchange market and that we will use
that information, including updates and costs and so on,
in thinking about appropriate measures in the future.
I need a motion.
CHAIRMAN BERNANKE: Let's go around.
Vice chair.
I'm in favor.
Governor Tarullo.
Governor Raskin.
[inaudible] GOVERNOR RASKIN: I support.
All right.
The motion carries.
Again, I thank the staff and thank the audience,
and meeting is adjourned.