Durbin leads cap on bank debit card transaction charges
Main Street outmuscled Wall Street last week as the Senate reaffirmed its support of limits on what banks can charge businesses for debit card transactions.
The cap’s chief proponent, Sen. Richard Durbin, (D-Ill.), said on the Senate floor prior to the vote that the limits amounted to standing up for small businesses.
Following weeks of furious lobbying and aggressive ad campaigns by both sides, retailers cheered the defeat of a measure that would have forced a one-year delay and re-examination of the caps on what are known as “swipe fees.” The measure needed 60 votes for passage but fell six votes short.
As part of the reforms to the financial system Congress adopted last year, the Federal Reserve Board was required to draw up rules that limit to about 12 cents what banks can charge retailers for every debit card transaction they process, no matter the size of the purchase. Currently, banks collect 44 cents on average.
Supporters of the caps say Wall Street banks amass billions in profits each year from the fees at the expense of small businesses, such as convenience stores and restaurants, and their customers. Opponents say that large retailers will receive a windfall under the lower fees and small banks and community credit unions could be forced out of business.
“It’s an outrage to make consumers across America pay this. They pay it every time they use their debit cars and the merchants and retailers who collect it have no voice in this process,” saidDurbin. “Where is the sympathy for small business on this floor? If we really believe that the key to economic recovery is the strength of small business ... for goodness sake, why don’t we stand up for them?”
But opponents say the cap will hurt consumers in other ways, notably higher fees on checking accounts, automated teller machine transactions and other bank-related services. And although smaller institutions (those with fewer than $10 billion in assets) would be exempt from the new rule, they could still suffer, opponents argue.
At a hearing earlier this year, Federal Reserve Chairman Ben Bernanke said retailers might reject cards from smaller banks that carry higher fees. And he said questions remain about the viability of setting up a two-tiered system of swipe fees.
Montana Democratic Sen. Jon Tester, who led the fight for the delay along with Republican Sen. Bob Corker of Tennessee, said that could mean banks in rural communities going out of business.
“We probably won’t lose too many banks in Washington, D.C., or Chicago, Illinois. But we will in rural America,” Tester said before the vote. “And I do not want to see it happen.”
The new fee structure is scheduled to take effect in July. Tester’s proposal, which had broad bipartisan support, would have delayed that for a year and required the Fed to study whether banks could recoup the true cost of processing debit card transactions if they received no more than 12 cents for each one. Banks said they wouldn’t.
The Consumer Federation of America has raised concerns about the impact on banking customers who may face new fees, and said banks should be reimbursed for legitimate costs. But the organization also opposed the current swipe fees system calling it “uncompetitive, non-transparent and harmful to consumers.”