Last year's financial reform bill included an amendment by Sen. Dick Durbin (D-IL) intended to reduce the swipe fees that businesses pay on every credit and debit card sale. The legislation directed the Fed to issue rules ensuring that these swipe fees—debit interchange fees—are "reasonable and proportional to the processing costs incurred."
The legislation passed, Durbin amendment included, and you know what happens next.
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....
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.
Several lawmakers who supported the debit card amendment or the broader financial regulation bill as a whole are now reversing course, as the antibank climate here softens. “I believe the Fed was given too narrow of set of rules” with which to draft the regulation, said Representative Barney Frank, the Massachusetts Democrat who sponsored Dodd-Frank in the House, which never voted separately on the debit-fee amendment. “Now there is genuine political pressure to do something. It’s very much in play.”
(As an aside, don't miss Felix Salmon's reaction to the NYT story, and to the hyped-up claims of financial ruin the banks are making regarding the fee.)
Those lawmakers who are rethinking this aspect of financial reform include Democratic Senators Jon Tester of Montana and Tom Carper of Delaware, and Senator Bob Corker, a Tennessee Republican, according to Bloomberg. According to Bloomberg's anonymous sources, they are working on legislation that would delay the implementation of the new swipe-fee rules.
“There’s no question legislation is being looked at,” Corker said in an interview. “The question we’re dealing with now is, what’s the best way of approaching this issue?” The lawmakers discussed the shape of a bill on the Senate floor last night, Corker said.
Tester, apparently accepting at face value what Salmon calls the "ludicrous" threat that banks won't be able to "afford" to issue debit cards to customers anymore, says that he's doing this to protect small business who rely on debit cards. "If debit cards go away, it’s not going to help small businesses,” Tester said in the Bloomberg story. Those small businesses would likely be just as happy to accept cash from their customers and not pay 44% fees for the transaction. Their customers would likely be happy to see some of the savings passed down to them.