Senate clears way for cap on debit card fees

  • Article by: JIM SPENCER , Star Tribune
  • Updated: June 8, 2011 - 10:53 PM

Vote marks rare victory in attempts to implement financial reform law.

WASHINGTON - The Senate let stand Wednesday rules that would dramatically reduce the fees large banks and credit unions charge retailers to process debit card sales.

To comply with recent financial reforms, the Federal Reserve was required to limit so-called swipe fees in an effort to keep banks from reaping billions of dollars in profits at the expense of small businesses and consumers. The Fed proposed a 12-cent cap per transaction -- a 70 percent cut in the average debit card fee.

The move sparked an expensive lobbying effort between retailers and bank and credit card companies as the Senate considered whether to delay the action.

The vote to allow the swipe-fee limits to move forward marked a rare and perhaps critical victory in attempts to implement the comprehensive financial reform law that passed last year. Dozens of other regulatory changes remain hamstrung as the financial industry seeks to delay, dilute or do away with them entirely.

"One fear was opening up the whole Wall Street reform and picking things off one by one," said Minnesota Democratic Sen. Al Franken, who voted against delaying the lower fees. Minnesota Democratic Sen. Amy Klobuchar also voted against the delay.

Retailers welcomed the Senate's decision.

"The banks were hoping to derail the new rule over the long term," said Mike Erlandson, director of government affairs for Minnesota-based SuperValu, one of the nation's biggest grocery chains that lobbied for the fee limits.

The Electronic Payments Coalition, a group of banks, credit unions and credit card companies, was one of the biggest spenders in a lobbying campaign against the caps. The group called Wednesday's vote "stunning" and promised to continue fighting against swipe fee limits, which it says will cause banks to possibly cancel debit cards.

Retailers and bankers each claim they have been acting in the best interest of consumers. Retailers say the higher fees, which cost $15.6 billion per year, force them to charge more for their products. Banks argue that the fee caps would force them to find revenue elsewhere by charging customers more for other services.

Small business owners from Minnesota have actively supported a cap on swipe fees. Some traveled to Washington to lobby legislators. Community banks and credit unions also engaged, decrying unintended consequences even though the fee restrictions do not apply to financial institutions with assets under $10 billion.

The move to delay the fee caps took the form of an amendment that was attached to a spending bill moving through the Senate. It needed 60 votes to pass but fell six votes short.

During the months leading up to the vote, big bankers and giant retailers poured millions into lobbying. The Electronic Payments Coalition bought television ads in prime time and subway ads in Washington to criticize what it called "Congress' $12 billion gift to giant retailers." Meanwhile, SuperValu, Target and other retailers lobbied furiously to cap the debit card fees, which they see as a first step toward reducing credit card fees.

Weeks ago, a Minnesota retail association ran a full-page ad in the Star Tribune calling the banks greedy and thanking Klobuchar and Franken for their support.

The rhetoric exchanged Wednesday was equally sharp between Sen. Jon Tester, D-Mont., who headed a bipartisan effort to delay fee limits, and Sen. Dick Durbin, D-Ill., who ensured that the limits were included in the original Wall Street reform bill.

Because of the $10 billion asset threshold, the fee limit will apply to only 100 of the nation's 7,000 banks and just three credit unions, Durbin noted. Three of the country's biggest banks -- Wells Fargo, Chase and Bank of America -- collect roughly half of the swipe fees now being paid, Durbin said.

As he spoke, Durbin turned and looked toward visitors in the public gallery.

"Look at the halls of Capitol Hill," he told the crowd. "You won't find small-town bankers. You'll find the big banks."

Tester, a burly, crew-cut farmer, fired back, "Look at me. Do I look like a banker?"

Tester said federal regulators have told him that trying to exempt small banks and credit unions from fee caps won't work because the free market will force them to lower swipe fees. He said he worries that lost income could cause some rural banks and credit unions to close.

Klobuchar said she believed the Senate will step in before that would happen.

"Durbin promised if this negatively affects community banks, he will go back in and make changes with Tester," she said.

Meanwhile, Klobuchar said she wants to see the Fed's final proposal before deciding it is too restrictive. Franken echoed that sentiment.

"I talked to a lot of mom-and-pop businesses," Franken added. Debit card swipe fees "really hurt them."

Dave Thompson owns Fisherman's Village, a fishing lodge near Battle Lake, Minn.

"I sell a dozen nightcrawlers for three bucks," Thompson said. "The swipe fee costs me 45 cents. I don't make 45 cents on a dozen nightcrawlers. If someone buys them with a debit card, it's actually cheaper for me to give the nightcrawlers away."

Jim Spencer • 202-408-2752

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