Pub. 5 2010-2011

September/October 2010 17 Extraordinary Service for Extraordinary Members. U NFORTUNATELY, THESE DOLLAR signs are on the wrong side of the ledger. Although nobody can know just how much the act and the myriad regula- tions that it calls for will ultimately cost, everyone seems to agree the sum will be substantial. Among other things, the Dodd- Frank Act will result in tougher exami- nations, new restrictions on lending practices, increased disclosure docu- mentation, and major changes to bank acquisitions and capital formation, but the biggest impact for most Nebraska banks will stem from the Consumer Financial Protection Bureau (CFPB) and the act’s debit interchange provi- sions. More than any other facet of the sweeping financial reform pack- age, these provisions are likely to drive up compliance costs, drive down revenues, and force banks to revisit Q Financial Reform — continued on page 18 The Impact of Financial Reform on the Community Bank’s Bottom Line Debit Interchange Provisions, Consumer Financial Protection Bureau Likely to Cause Greatest Burden Jonathan J. Wegner , Baird Holm LLP In light of the July passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Nebraska bankers have begun trying to figure out how financial reform will affect their bottom lines. terms of key vendor agreements. For many banks, new staff will need to be added and, for some, the increased compliance burdenmay compel banks to pursue mergers or acquisitions to achieve sufficient scale to mitigate rising compliance costs. However, while many have focused on the prospect of increased costs, revenue losses are likely to prove even more troublesome. “Just about every analyst inAmerica who follows banks has put out a report indicating what the cost of different elements of the bill would be,” said Richard Bove, a U.S. banking analyst at Stamford, Conn.-based, Rochdale Securities. “What’s missing in all this analysis is the ability of banks to gener- ate new revenue streams to offset the ones that are being lost.” Interchange Fee Regulation In terms of lost revenue streams, the interchange or “swipe fee” provisions of the act will cut into the fees that many community banks depend on to offset costs of providing other customer services, like free checking and online banking. Debit interchange transac- tion fees are charged most commonly to retailers when a debit cardholder chooses to initiate debit transactions over a card network. A portion of these fees are paid to the cardholder’s bank and the merchant’s bank, which facilitates the transaction in connection with the network. The legislation applies to any fee charged “for the purpose of compen- sating an issuer for its involvement in an electronic debit transaction.” The interchange provisions were pushed by large national retailers and trade groups which argued that even though processing costs had fallen, Visa, MasterCard, and other card net- works were continuing to raise their fees, cutting into retailers’ profits