Economic Development Revitalization Act of 2011

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Mr. COONS. Mr. President, I rise in support of the amendment offered by the Senator from Montana.

I was an original cosponsor of Senator Tester's bill, which forms the basis for this amendment, because I am concerned about consumers, credit unions, and the financial sector in Delaware. The Federal Reserve's proposed rule on interchange regulation does not guarantee consumers will benefit from reduced rates, and inadvertently creates a mechanism that could destabilize some of our small, community banking institutions. Because of these unintended consequences, I believe the Fed should go back to the drawing board and rethink the way it is going about setting interchange fees.

I know my friend, the Senator from Illinois, worked hard last Congress, bearing in mind the interests of all parties involved, to authorize the Fed to make such a rule on regulating these fees. The Durbin amendment included a well-intentioned provision to protect small banks by creating a carve-out exemption from certain interchange fee caps.

Unfortunately, I believe the Fed issued its proposed rule in haste, and it is becoming clear that this carve-out exemption threatens the competitiveness of smaller banks, community banks, and credit unions. A belief in the viability of this exemption was crucial in securing the votes necessary to include Senator Durbin's amendment in the Dodd-Frank reform package.

When the Senator from Illinois wrote his amendment last year, I know he had the best of intentions when he directed the Fed to establish a debit rate that is ``reasonable and proportional'' to the ``incremental'' cost of an individual transaction. These criteria, however, have tied the Fed's hands and, essentially, prohibit the Fed from considering all costs associated with debit operations when regulating debit interchange fees.

Additionally, the two-tiered interchange system proposed by Durbin's small bank exemption may be considered unworkable in practice and subject to market forces. The Chairman of the Federal Reserve, Ben Bernanke, admitted as much when he appeared before the Senate Banking Committee in February. He noted that ``there is a possibility ..... that, either because merchants wouldn't accept the more expensive cards or because networks would not be willing to have a two-tier pricing system, it's possible that in practice they would not be exempt from a lower interchange fee.''

I have met in recent months with a broad range of large and small banks, credit unions, card networks, retailers, merchants, and other concerned parties from Delaware and other States about the Fed's proposed rule. With their helpful input, and with our continued economic recovery foremost in mind, I have joined with a bipartisan group of Senators in support of this amendment, which would direct the Fed to study this issue further and come up with a rule that does not risk harming the small banks and credit unions that play such an important role in our communities.

At a time when large banks have been reluctant to lend capital, more and more new businesses and ventures are being started through loans from smaller community banks and credit unions. We cannot afford to undercut their lending ability through the losses they are likely to incur if the Fed's proposed rule becomes final. The effect that would have on our recovery could be harmful.

At a hearing held by the Banking Committee on May 12, Chairman Bernanke was asked what the effect of the small bank exemption would be if the proposed rule were implemented. He answered: ``It's going to affect the revenues of the small issuers, and it could result in some smaller banks being less profitable, or even failing.''

Furthermore, at the same hearing, Sheila Bair, Chairman of the FDIC, stated: ``I do think this is going to reduce revenues at a number of smaller banks, and they will have to pass that on to customers in terms of higher fees.''

Above all, we must not do harm to consumers--especially when so many have had to tighten their belts during the recession and are just starting to get back on their feet. The same goes for proprietors of small businesses. Delaware is home to so many hard-working small business owners, merchants who rely on the acceptance of debit card payments for daily transactions. I believe the Fed needs to create a rule that strikes a balance between supporting robust commercial activity for small businesses and their consumers and safeguarding the viability of small banks and credit unions.

Senator Tester's amendment does just that. It calls on the Fed, the FDIC, the Comptroller of the Currency, and the National Credit Union Administration to make a determination whether a proposed rule does not include all fixed and incremental costs, whether it might adversely affect debit card consumers, or whether the small bank carve-out would be impractical.

This issue requires a closer and more careful look. Chairman Bair stated at the hearing in February that ``it was done very quickly,'' and ``who's paying for what, who's going to pay more, and who's getting to pay less under this is something that maybe wasn't dealt with as thoroughly as it might have been.''

This is why I am a cosponsor of Senator Tester's amendment and why I will continue to work for interchange rules that are fair and do not harm a vital sector of our economy during these difficult economic times. We must continue to be relentless in our focus on economic recovery and job growth, and the Tester amendment does just that.

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