WASHINGTON – In a heavily lobbied fight pitting financial institutions against merchants, supporters of the nation’s banks pushed Tuesday toward a Senate vote aimed at blocking a government plan to cap the fees that stores must pay banks whenever a customer swipes a debit card.
Both sides claimed to represent consumers’ interests in the high-stakes battle over the $16 billion yearly that the Federal Reserve says stores give banks in those fees. Merchants say the fees force them to charge higher prices and thwart their efforts to grow and add jobs. Banks say the fees are too low because they don’t consider all of their costs in administering debit card programs, and say they’d have to raise other charges — such as for checking accounts — if the swipe fees are reduced.
A showdown vote was set for Wednesday. If successful, the provision would block a Fed proposal that would cap the so-called interchange fees at 12 cents per swipe. That’s down from the current average of 44 cents, the result of fees that average between 1 percent and 2 percent per transaction.
Last year’s financial overhaul legislation ordered the Fed to issue a proposal and for a final rule to take effect on July 21. The proposal debated by the Senate would delay the regulations for a year and order the Fed and three other federal agencies to study whether the proposal is fair — and rewrite it if at least two agencies decide it is not.
With merchants and bankers important constituencies and contributors to both Democrats and Republicans, lawmakers’ views on the effort crossed party lines. Sen. Jon Tester, D-Mont., a first-term lawmaker facing re-election in a GOP-leaning state next year, was a leader of the effort to block the cap on fees, while Sen. Richard Durbin of Illinois, the Senate’s No. 2 Democratic leader, was its leading foe.
Durbin, author of the provision in last year’s law that paved the way for the Fed’s plan, said the fight offered senators a clear choice.
“They’re either going to be on the side of the banks and credit card companies, or be on the side of consumers and businesses across the America to give them a fighting chance,” Durbin said.
Tester said he was not fighting for the nation’s largest banks, saying, “They have plenty of sources of revenue. No one needs to shed a tear for them.”
Rather, he said, he was on the side of small financial institutions that dot his rural state, which he said would be in danger of disappearing if their revenues collapsed.
“Fewer banking options in rural America is a death-knell for rural America,” Tester said. “But that is where we are headed.”
Using Senate procedures, Durbin was forcing Tester to win votes from 60 of the 100 senators to prevail, a tough hurdle. Both sides conceded that Tester could be close to a victory, though it could be difficult for him to overcome the experienced and powerful Durbin in the behind-the-scenes struggle for the decisive votes.
Tester and Sen. Bob Corker, R-Tenn., another leader in the effort to block the Fed, said their proposal was a compromise. Initially they sought a two-year delay, and their new plan had a shorter window and conceded that debit card fees would be regulated — it was just a matter of when and how.
Durbin said the effort was not a compromise because he and the merchants he is backing opposed it and had no input. Recalling the 2008 taxpayer bailout of faltering financial institutions, he said, “Are we going to be shaken down a second time? That’s what this debate is all about.”
The swipe fee fight is an issue that many lawmakers would prefer to not have to vote on because it forces them to choose between two groups that few members of Congress are eager to provoke — especially with a third of the Senate and the entire House up for re-election next year.
“It sort of pits senators between retailers and bankers. And I understand that. And people really just don’t like being in that position,” Corker said.
Financial institutions and merchants spend millions of dollars a year lobbying on Capitol Hill, and their attempts to sway the vote are far from over.
A radio ad in Montana, sponsored by the National Retail Federation and the Montana Retail Association, took direct aim at Tester.
“He’s helping the big banks delay debit card swipe fee reform,” the announcer says. “Sen. Tester says he’s for the consumer, but Tester lets the big banks swipe our money.”
Ads from the other side make similar claims. In one radio commercial that ran recently in Idaho, an announcer says of the Fed proposal, “This government regulation will hurt our local community banks and credit unions and could force you to pick up the tab for giant retailers,” a reference to the big-box retail behemoths that banks and credit unions say would be the biggest beneficiaries if the fees are reduced.
Underscoring the unlikely coalitions the battle was spawning, Tester’s proposal was being supported by the conservative Americans for Tax Reform on the ground that the Fed proposal would impose price controls. Supporting Durbin was the Armed Forces Marketing Council, whose members operate exchanges on military bases and which argued that the fees hurt military families.