It seemed a good idea last year, when the financial crisis had turned banks into Public Enemy No. 1 and lawmakers were looking for ways to reward consumers still bitter about billion-dollar bailouts and executive bonuses.

Without much warning or debate, the Senate passed an amendment directing the Federal Reserve to reduce the hidden “swipe fees” that banks collect from retailers each time a customer makes a purchase with a debit card.

Merchants, who had complained that the $20.5 billion in annual fees were biting into their profits, were elated. Banks were stunned. Their lobbyists tried to reverse the move, but when the overhaul of the nation’s financial regulation was passed by Congress last July, the debit card cut survived.

Now, as the Fed faces a deadline in April to write the rules for the lower fees, banks and debit card companies are engaged in an all-out assault on Capitol Hill, enlisting a growing cadre of lawmakers and lobbyists to push for changes, delay or outright repeal. Banks contend the proposed cut in fees — to 12 cents per transaction from an average of 44 cents — will leave many of them unable to afford to issue debit cards to customers or will force them to raise other consumer banking charges to cover the costs. They also claim retailers will reap unfair profits.

A coalition of banks and card companies have plastered subway cars and Internet sites with ads warning, “Bureaucrats want to take away your debit card!”

“I am appalled that our members will shoulder tremendous financial burden and still be on the hook for fraud loss while large retailers receive a giant windfall at the hands of the government,” John P. Buckley Jr., the president of Gerber Federal Credit Union of Fremont, Mich., told a House of Representatives subcommittee last week.

This week, a trade group of convenience store owners will storm Capitol Hill with their side of the story.

“These fees are stunting business growth and hurting efforts to hire more workers and expand operations,” Douglas Kantor, a lobbyist for the Merchants Payments Coalition, a retailer trade group, said recently.

The lobbying has been intense over the last year with the card companies and banks hiring, among others, Sam Geduldig, a former adviser to Representative John A. Boehner, Republican of Ohio and the House speaker, and Regina Mahony, formerly a senior adviser to Representative Steny H. Hoyer, Democrat of Maryland, according to OpenSecrets.org, which tracks lobbyists.

Representatives of the retailers include the former Republican Senator Don Nickles of Oklahoma, and Sheryl Cohen, a former chief of staff for Christopher J. Dodd of Connecticut, the Democratic senator who sponsored the financial regulation bill and is now retired.

This debate is but one area where the consequences — intended and not — of the sprawling Dodd-Frank financial regulation law are coming to light. In an interview with CNBC on Friday, Alan Greenspan, the former Fed chairman, predicted that portions of the law would have to be reversed. “And that’s going to create very high degrees of uncertainty,” Mr. Greenspan said, something the markets hate.

Lawmakers tried to soften the blow by exempting smaller banks from the fee cap. But now even those institutions with less than $10 billion in assets oppose the law. They say that if they continue to levy the current, higher fees, their debit cards will not be able to compete against the big banks, which will charge lower fees because they have no choice. They gained a significant ally when Ben S. Bernanke, the Fed chairman, told a Senate panel last month that he thought a two-tier fee system would not work.

To read the full story: The New York Times

WASHINGTON — Focused on keeping the recovery going and driving down double-digit unemployment, the Federal Reserve is poised to leave interest rates at a record low.Fed Chairman Ben Bernanke and his colleagues, at the end of their two-day meeting Wednesday afternoon, will likely strike an upbeat note about the progress the economy is making. But they’ll also caution that now is not the time to be complacent against risks.

Signs are growing that the economy is on the mend. Consumers and businesses are spending again. The housing market is stabilizing. Manufacturing is growing. And layoffs are moderating.

But there’s much uncertainty about how the recovery will fare next year after government stimulus starts to fade. Loans are also still difficult for many people and businesses to get, a force putting a damper on an energetic economic rebound.

Against that backdrop, the Fed is all but certain to keep the target range for its bank lending rate at zero to 0.25%, where it’s stood since last December.

The Fed also is likely to retain a pledge first made in March to hold rates at such levels for “an extended period.”

In response, commercial banks’ prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will remain about 3.25%. That’s its lowest point in decades.

Super-low interest rates are good for borrowers who can get a loan and are willing to take on more debt. But those same low rates hurt savers. They’re especially hard on people living on fixed incomes who are earning measly returns on savings accounts and certificates of deposit.

Tight credit is clobbering small businesses, normally an engine of job creation during economic recoveries. That’s crimping their ability to hire and expand.

Many small businesses rely on smaller banks for credit. But troubled commercial real estate loans are concentrated at those banks. That’s hobbled the flow of credit. At a White House meeting Monday, President Barack Obama urged top bankers to increase lending to small businesses. Afterward, some banks pledged to do so.

The central bank also isn’t expected to make any major changes to a program, set to expire in March, to help further drive down mortgage rates.

A big question is whether the Fed will hint about when they will reverse course and start boosting rates.

Plans for reeling in the unprecedented amount of money the Fed has plowed into the economy to bolster the recovery are likely to figure prominently during the closed-door discussions.

The central bank faces a high-stakes challenge: If it removes the stimulus too soon, it could short-circuit the fragile recovery. But if it moves too late, it could unleash inflation or new speculative asset bubbles.

Bernanke, who’s seeking a second term as Fed chief, has made clear his No. 1 task is sustaining the recovery. Last week, he and other Fed officials signaled they are in no rush to start raising rates.

At the same time, Bernanke has sought to assure skeptical lawmakers and investors that when the time is right, he’s prepared to sop up all the money. Some worry that the Fed’s cheap-money policies will stoke inflation.

A government report out Tuesday showed that wholesale prices shot up last month, but most economists think it will prove fleeting.

Federal Reserve Chairman Ben Bernanke repeated his belief that slack in the economy — meaning plants operating below capacity and the weak employment market — will keep inflation under wraps.

“The bulk of evidence indicates that resource slack is now substantial,” Bernanke wrote, in a letter released Tuesday. The Fed chief was responding to wide-ranging questions posed earlier this month by Sen. Jim Bunning, a Kentucky Republican.

Some encouraging signs for the economy have emerged lately. The economy finally returned to growth in the third quarter, after four straight losing quarters. And all signs suggest it picked up speed in the current final quarter of this year.

The U.S. unemployment rate dipped to 10% in November, from 10.2% in October. And layoffs have slowed. Employers cut just 11,000 jobs last month, the best showing since the recession started two years ago.

Still, the Fed predicts unemployment will remain high because companies won’t ramp up hiring until they feel confident the recovery will last.

Consumers did show a greater appetite to spend in October and November. But high unemployment and hard-to-get credit are likely to restrain shoppers during the rest of the holiday season and into next year.

Thus, keeping rates low “is still central to the Fed’s economic game plan,” said Greg McBride, analyst at Bankrate.com. “Even a better than expected November employment report may prove to be a one-hit wonder and won’t be enough to shift the Federal Reserve away from a cautious economic tone.”

The Federal Reserve released a long-awaited rule Thursday requiring banks and credit unions to get consumers’ permission before charging steep fees to pay debit card and ATM overdrafts.

Fed Chairman Ben Bernanke in a statement said the new regulation “represent(s) an important step forward in consumer protection.”

The final rule, which comes amid intense congressional scrutiny of bank overdraft practices, will take effect by July 1, 2010, for new customers and Aug. 15, 2010, for existing customers. The Fed released a preliminary rule on debit card and ATM overdrafts late last year, but didn’t say then if it would require banks to get consumers’ consent before signing them up for these programs.

Consumer advocates also criticized the Fed rule, saying it doesn’t go far enough to curb overdraft fees that are pushing some people into financial turmoil. The regulation, for instance, doesn’t restrict fees charged by banks for overdrawn checks and recurring debit card transactions, such as monthly bill payments.

Some experts warn that as regulators restrict certain practices, banks will just find new ways to make money off vulnerable consumers.

http://www.usatoday.com/money/industries/banking/2009-11-12-fed-overdraft-rule_N.htm

The Federal Reserve plans to release a rule in the next month that requires banks to get consumers’ permission to charge a fee for paying certain transactions that overdraw their account.

Federal Reserve Governor Daniel Tarullo said that the new regulation would allow a consumer “to know that he or she was opting into a program like this.”

The Federal Reserve has acknowledged that the high overdraft and bank fees are pushing consumers into deeper debt. Overdrawn transactions have long been a profit center for banks, but USA TODAY’s research has found that they’ve now become the single-largest driver of consumer fee income. In 2009, banks are expected to reap a record $38.5 billion from overdraft and insufficient-funds fees, nearly twice the $20.5 billion they stand to collect from credit card penalties.

Large banks, including Chase and Bank of America, have rolled back some of their overdraft policies. This week, Capital One  became the latest to do so when it posted a notice online saying it plans to cap the maximum number of overdraft fees that could be charged per day – to four – and not charge a fee when consumers overdraw by $5 or less per day.

Sen. Charles Schumer said regulators’ inaction shows the need to create an independent consumer financial protection agency, which would regulate overdrafts and other forms of consumer credit.

http://www.usatoday.com/money/perfi/credit/2009-10-15-overdraft15_ST_N.htm