Big banks lose, retailers win on debit card swipe fee

Paula Duffy's picture

An effort to delay limits on fees that banks charge retailers when customers use debit cards was defeated in the Senate on Wednesday.

Part of the Dodd-Frank financial reform legislation which became law last year was under attack, as the time drew near for a significant reduction of what are called "swipe fees". The cost to retailers for purchases made with a debit card stands at $.48. The Dodd-Frank reform laws contained a provision for those fees to be reduced and capped, in July 2011. The vote against the delay was 55-45, making it ripe for a filibuster that insiders believe will not occur.

The defeat is seen as a good sign for supporters of the Dodd-Frank overhaul, which has been the subject of efforts to repeal in its entirety.

The Wall Street Journal reported that come July 21, the new fee structure will be in place. The Federal Reserve drafted a proposal late last year that was sent to Congress for review. It would reduce the current fee to $.12, amounting to pulling an estimated $15.2 billion from the banking industry. It's usual cautions were issued in the course of the lobbying efforts, that consumers would end up paying more in new fees and benefiting less from bank rewards programs.

On the other side of the battle was the retail industry. It produced its own data to show that consumers will benefit from the swipe-fee reduction. If there is less going out to banks and credit card companies, retailers can lower prices, but make no promises to do so. Their reasons to support the fee reduction also included a plea to Senators to consider more than nationwide, big box retailers. Small retailers around the country will also benefit in a financial climate that makes it difficult to be profitable.

Both sides spend enormous sums a year for lobbying efforts and political contributions. The Journal reported that while lobbying was stepped up on both sides of the debate, the banking industry made the most headway in the run up to the voting. The Times reviewed data from the Sunlight Foundation. "It reported that 24 lobbying firms had been hired last year to influence action on the debit card rules. Eighteen of those firms were registered as representatives of the two major debit card networks, Visa and MasterCard.

Heading up the defense of the fee cap was Senator Dick Durbin (D IL) who saw support for the measure slip among his Democratic and Republican colleagues. When the debit card fee rule was passed last year, it was with a 2-1 ratio of Senators, according to the New York Times. Twelve Senators turned around to vote with the supporters of the fee delay, influenced no doubt by the lobbyists, one of whom was a former colleague. Dick Gephardt, former Majority leader of the Senate and a Democrat was leading the charge on the Hill for VISA.

With both sides using consumers as the beneficiary of their side of the argument, it was a difficult decision for many Senators who receive political contributions from members of both constituencies. The banks also said their fight was on behalf of small banks and credit unions who would suffer the most. The Times pointed out that the legislation exempts banks with less than $10 billion in assets.

Image credit: Wikimedia Commons

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