Nebraska’s small banks at risk unless an appeals court comes to the rescue

Can you guess the common thread that connects the following facts?

Of the more than 44,000 farms in Nebraska, about 81 percent are family owned and operated.

There are around 180,000 small businesses operating in Nebraska, employing more than 410,000 workers – nearly 50 percent of Nebraska’s workforce.

There are 245 public school districts across Nebraska, each with sports teams, music departments, academic clubs and other extracurricular activities. There are 174 non-public school systems operating in the state with varying degrees of after-school activities.

What do family farms, small businesses and extracurricular school teams and clubs have in common?

When farmers need a loan until the crops are harvested, or entrepreneurs look for startup help to proclaim “Open for Business,” or teachers, coaches and students seek sponsorship for uniforms, instruments, travel or other needs, local banks and credit unions are usually the first place they turn.

But the ability of local banks and credit unions to continue offering the kind of personal, neighborly services local residents have come to rely on might hinge on adecision pending in the Eighth Circuit Court of Appeals, which covers Nebraska.

The case centers on Regulation II, the Federal Reserve rule implementing the Durbin Amendment — a 2010 federal law that capped the fees banks can charge stores when customers use debit cards.

When Congress passed the Durbin Amendment, lawmakers said swipe fees should be “reasonable and proportional” to the actual cost of processing a transaction. They did this because they knew that some of the most politically well-connected, greediest corporations in America were lobbying Congress to make the cost too low.

That’s where Regulation II comes in.

To prevent these companies from getting their way, the Federal Reserve studied the market and set a formula designed to reflect real processing costs, including fraud prevention. Reg II is one of the primary lifeboats keeping smaller banks and credit unions afloat and allowing them to provide conveniences like free checking and lower banking fees.

Needless to say, the nation’s largest retailers don’t like Reg II, and more than a decade ago they challenged it in court. In 2014, the D.C. Circuit dismissed the case, and since then card issuers and businesses have based their decision-making on that outcome.

Now, these fat cap corporations are taking a second bite at the apple, and unfortunately a judge in North Dakota handed them a win last year. That decision is being appealed to the Eighth Circuit appeals court, which includes Nebraska.

Supporters claim that axing Reg II will lower costs for shoppers as retailers, faced with less operating costs, will pass on the wealth. History doesn’t look on their theory very favorably.

Despite their promises, giant retailers did not pass on the savings that came with the 2010 Durbin Amendment. In fact, the only thing consumers got from their Durbin Amendment was higher banking costs.

Because card processors were forced to fund their operations through our means, bank fees went up significantly for many, and debit card rewards programs went away for just about everyone. Striking down Reg II will worsen this problem.

In an amicus brief supporting the Federal Reserve Board’s appeal, banking and credit union trade groups said that the result would “give merchants – and only merchants – a windfall, while hurting other participants in the debit card market.” They continued by stating that “consumers would not benefit” because “merchants have demonstrated that they would not pass along any savings.”

As is too often the case, the people who stand to lose the most – family farmers, small business owners, students and their schools – are not officially part of the case. But their ability to maintain the kind of personal relationships with their local banks and credit unions could hang on the appeals court’s decision.

For the decision-makers at locally run financial institutions across Nebraska, customers are more than faceless names and accounts on a corporate ledger. They’re friends and neighbors. In an increasingly impersonal world, local banks and credit unions represent the last remnants of the trust of a handshake and the value of a promise. Let’s hope the court keeps that tradition intact.

---

April is a small business owner and Democrat political activist from Omaha.