Board of Governors of the Federal Reserve System

December 16, 2010

Thank you, Mr. Chairman. As you noted, this afternoon we will consider staff's proposal for implementing the debit card interchange fee and transaction routing provisions of the Dodd-Frank Act.

As background to this proposal, it is important to note the prominent role debit cards now play in our payments system. The results of a new Federal Reserve survey published earlier this month show that nearly 38 billion debit card payments were made in the U.S. in 2009. Debit cards are now used in 35 percent of noncash payment transactions, and have eclipsed checks as the most frequently used noncash payment method.

The Dodd-Frank Act specifically directs the Board to set standards for debit card interchange fees. These fees are established by payment card networks and paid by merchants to card issuers for each debit card transaction. Over time, interchange fees have grown, as both the number of debit card transactions and the level of interchange fee rates have risen. This has precipitated a national and international debate over the appropriate level of the fees. In 2009, debit card interchange fees totaled over $16 billion in the United States.

The Board's Payments, Clearing, and Settlement Committee has discussed with staff the numerous difficult issues involved in developing this proposed rule. I believe staff's proposal reflects a reasonable approach to implementing these requirements of Dodd-Frank. That said, we have included a number of questions in the Federal Register notice about alternative approaches to implementing different parts of the rule. We will be interested in reviewing commenters' input on the proposal as we determine what refinements should be made when it is adopted as a final rule.