Rep. Barney Frank critical of Fed debit card fee rule

WASHINGTON (Reuters) - The Federal Reserve's proposal to limit debit card fees would not allow card companies to cover the full cost of transactions, House Financial Services Chairman Barney Frank said in an interview on CNBC.

The proposal released on Thursday would generally limit debit "interchange" fees at 12 cents per transaction. The average interchange fee for all debit transactions was 44 cents in 2009, the Fed said.

"I think the way it was written, the amount the credit card companies are allowed to charge is too low," said Frank. "It does not reflect the full cost of all that you have to do if you are running a credit card operation."

Banks charge retailers the fees and merchants have long tried have a limit put in place.

The fee limit was included in the financial regulatory overhaul law enacted in July. Frank is one of the law's main authors and it is often referred to as Dodd-Frank, with Senate Banking Committee Chairman Christopher Dodd being the other lead author.

CardHub.com said on Friday it estimates the Fed proposal would cost banks $13 billion in revenue annually.

Frank expressed concern that whatever savings are achieved will not be passed on to the consumer.

"Unfortunately the evidence we've seen elsewhere is that consumers don't get any benefit," he said.

Analysts expect banks to make up for lost fees by curtailing rewards programs and increasing other fees.

Frank said the fee limit was added to the bill at the insistence of the Senate and that he would have preferred it had been left out.

Frank has also expressed concerns the limit will hurt small banks even though they are technically exempt from that provision of the law.

The rule, as required by the law, also seeks to introduce more competition into the card network market by requiring that transactions be able to be processed over more than one network, which analysts view as a blow to Visa and MasterCard.

(Reporting by Dave Clarke; Editing by Robert MacMillan and Richard Chang)