Lawmaker on debit fee curbs: "slay the dragons"

By Rachelle Younglai

WASHINGTON (Reuters) - A key Republican lawmaker on Monday urged hundreds of tiny banks to "slay the dragons" when they battle Congress over new limits on debit card fees that could hurt their profits.

Speaking to bank executives before they set out to lobby lawmakers this week, Representative Spencer Bachus told them the outcome of the controversial "interchange" rule was "up to them."

"Go ye to the hill and slay the dragons," said Bachus, the chairman of the House Financial Services Committee that is helping to oversee the implementation of the Dodd-Frank regulation bill.

As required by the legislation, regulators are crafting the "interchange" rule that will crack down on fees banks charge merchants on debit card transactions.

The provision is detested by small banks as well as the big card networks Visa Inc and MasterCard Inc and big Wall Street banks such as Citigroup and JPMorgan Chase & Co.

The Federal Reserve in December proposed capping the debit card fees at about 12 cents per transaction -- a 75 percent cut. At the Fed's proposed level, the cap would cost the bank industry about $13 billion in annual revenue, has said.

The law specifically exempts banks with less than $10 billion in assets from the crackdown but community bankers say they are skeptical about how that part of the law will work in practice.

Thousands of small banks with deep ties to their local communities were mobilized by their lobby group, the Independent Community Bankers of America, to go to Washington to persuade Congress to give them a break.

Top of their list is convincing lawmakers to delay implementation of the debit card plan by two years and to give bank regulators more say on rules of the new Consumer Financial Protection Bureau.

In a list of "lobbying dos and don'ts," small bankers from across the country were told to be "bring the issue down to the local level" and to follow up with visits to district offices and town hall meetings.

Bachus reassured bankers at the meeting that he knew that the Dodd-Frank bill and excessive regulations punished small businesses. "You did not cause the problem. You were not the tornado, you were the victim," he said.

At the same meeting, Deputy Treasury Secretary Neal Wolin, also tried to allay concerns that the Dodd-Frank reforms would be overly burdensome and costly for the small banks.

"They're working to make sure that regulations protect the system but don't hurt small banks or prevent them from doing their job," Wolin said.

Small banks already have an ally of sorts with Federal Reserve Chairman Ben Bernanke, who has said the Fed will do everything possible to keep the proposed rule from hurting them.

In addition to lobbying members of Congress, bank executives will be targeting the Fed, the Federal Deposit Insurance Corp and the consumer bureau --- which is still being established by the Obama administration.

(Reporting by Rachelle Younglai; editing by Leslie Adler)