After a Senate vote to delay them fails, new caps on fees that banks and credit unions charge merchants when customers make debit card transactions are expected to be implemented as planned by July 21, 2011
Retailers and merchants have been trying for years to limit or reduce the amount they pay credit card networks Visa and MasterCard and the card-issuing banks each time customers use their debit cards for purchases. Known in the industry as interchange fees, these charges generate an estimated $1.3 billion in revenues for banks and credit unions each month.
“This is a landmark victory for American consumers that will give them the break from skyrocketing swipe fees that they have been seeking for years,” Matthew Shay, president and CEO of the National Retail Federation, said in a statement. The retail trade group was among several merchant coalitions that have lobbied hard against banking industry attempts to weaken or delay the swipe fee rules.
Under a provision included in the massive Wall Street reform law approved in July 2010, the Federal Reserve proposed rules to cap debit card interchange fees at just 7 cents to 12 cents per transaction. Currently, average debit card fees are 1 percent to 2 percent of the purchase amount. On the average purchase, that comes to about 44 cents per swipe.
The delay-and-study measure failed even though 54 senators voted for it, with 45 opposed. Senators needed 60 votes to pass the measure, which would have then gone on to the U.S. House of Representatives for consideration. With Wednesday’s vote, the limit is still set to go into effect July 21, 2011.
Sen. Dick Durbin, the Illinois Democrat who sponsored the original debit interchange restrictions, said the failed amendment would have delayed implementation of swipe fee caps indefinitely. “There’s no telling when, if ever, these rules will go into effect. How long should we delay it? From the banks’ point of view, forever. Banks are making $1.3 billion a month on debit card interchange.”
Durbin added: “It would give them a free pass to charge anti-competitive fees for at least another year.”
The Federal Reserve Board has been working on final debit interchange rules that are expected to be released by the end of June. Fed Chairman Ben Bernanke has said he expected the rules to be issued and effective on schedule by the July 21st date. Barring any other congressional action, the Fed’s rules will take effect as planned.
Exemptions for small lenders
The failed bill would have delayed interchange caps for a year while regulators studied, among other things, the potential impact of the law on small banks and credit unions.
One of the most controversial aspects of the new interchange law exempts banks and credit unions with less than $10 billion in assets from the debit swipe fee restrictions. Essentially, small banks would be able to set higher interchange fees. However, as Fed chairman Bernanke pointed out in congressional hearings, market forces would prevent small banks and credit unions from reaping the benefits of the exemptions because merchants wouldn’t likely accept debit cards issued by these small institutions if they charged the higher interchange fees.
“I’m saying let’s slow down a little bit,” Sen. Jon Tester, the Montana Democrat who co-sponsored the plan to delay the new interchange rules, said earlier in the day from the Senate floor. “Let’s make sure we get it right. Let’s not try to solve one problem and create three others.”
Said Tester: “If the Fed rules go into effect, the small banks and credit unions will suffer because the exemptions simply will not work.”
Frank Keating, president and CEO of the American Bankers Association trade group, issued a statement calling the vote “a dark day for every bank that issues debit cards and for consumers that have come to rely on them.” He added: “We will continue to push hard for relief from this ill-conceived law.”
See related:Debit card swipe fee debate pits banks against retailers; consumers in the middle, Debit card payments surpass checks, credit cards, 4 ways to avoid debit card overdraft fees, Banks cutting, canceling debit card rewards programs