Se­nate OKs cap on debit fees on re­tail­ers de­spite bank protests

The Washington Times Weekly - - Politics - BY TIM DE­VANEY

The Se­nate on June 8 sided with re­tail­ers over bankers, vot­ing to let the Fed­eral Re­serve move for­ward with a plan to cap the “swipe fees” the fi­nan­cial in­sti­tu­tions charge mer­chants to ac­cept their cus­tomers’ debit cards, but it is still un­clear what im­pact the de­ci­sion will have on con­sumers.

Mer­chants say the swipe fees, the high­est in the world, if left un­capped would force them to raise prices for all con­sumers. But the fi­nan­cial in­sti­tu­tions that lob­bied hard against the caps warned that the loss of rev­enue will force banks to raise fees on other ser­vices.

“It’s a win for con­sumers to take a bro­ken mar­ket and fix it,” said Ed Mierzwin­ski, spokesman for U.S. Pub­lic In­ter­est Re­search Group, a con­sumer or­ga­ni­za­tion. “I’m ex­cited that con­sumers may fi­nally be­gin to ben­e­fit from re­duced swipe fees.”

Last year, Congress voted to cap debit card fees as part of a fi­nan­cial re­form bill that Pres­i­dent Obama sup­ported.

The Fed­eral Re­serve, cit­ing a study that showed the trans­ac­tion costs 4 cents to process, pro­posed a 7 cents to 12 cents cap per trans­ac­tion.

But in­tense lob­by­ing ef­forts by banks con­vinced a bi­par­ti­san group of sen­a­tors, led by Sen. Bob Corker, Ten­nessee Repub­li­can, and Sen. Jon Tester, Mon­tana Demo­crat, to push for a de­lay to the law.

The Se­nate voted 54-45 in fa­vor of their pro­posed de­lay, but they needed 60 votes, leav­ing the caps to go into ef­fect, as planned, on July 21. Lawmakers are still wait­ing on the Fed to fi­nal­ize the rules.

“Let us, at the end of the day, fi­nally, fi­nally, fi­nally stand up for con­sumers,” Sen. Richard J. Durbin, the Illi­nois Demo­crat who in­tro­duced the caps last year and op­posed the de­lay. He warned lawmakers that a vote in fa­vor of the de­lay would be like giv­ing a “big sloppy kiss” to banks.

Still bit­ter over the de­feat of his “de­lay and study” bill, Mr. Corker said price fix­ing is not Amer­i­can.

“We don’t live in a coun­try where price fix­ing is typ­i­cally the way we deal with is­sues,” he said.

Re­tail­ers breathed a big sigh of re­lief when the caps sur­vived the vote: Right now, they pay an av­er­age of 44 cents per trans­ac­tion. If a cus­tomer only buys a candy bar or a drink at a gas sta­tion, that eats up about half of the rev­enue.

“The long road to­ward in­ter­change re­form can con­tinue on,” said David French, se­nior vice pres­i­dent for gov­ern­ment re­la­tions at the Na­tional Re­tail Fed- er­a­tion. “Our lit­tle speed bump is over, and now we can move on to the next fight.”

For the Na­tional Re­tail Fed­er­a­tion, the next fight is ex­tend­ing these same in­ter­change caps to the credit card in­dus­try, he said, which are even higher than those in the debit card in­dus­try.

But some won­der whether the re­tail chains will ac­tu­ally pass along the sav­ings to con­sumers. Even if they do, con­sumers might not no­tice the price dif­fer­ences, when re­tail­ers would be sav­ing only about 32 cents to 37 cents not on each prod­uct, but on the en­tire or­der.

“I think re­tail­ers did not look at the best in­ter­est of the con­sumers,” said Richard Hunt, pres­i­dent of the Con­sumer Bankers As­so­ci­a­tion. “Mer­chants are try­ing to get a ben­e­fit for free and it’s go­ing to hurt con­sumers.”

Mr. Mierzwin­ski, though, said mar­ket competition will force re- tailers to pass the sav­ings on to cus­tomers.

“Once banks lower their swipe fees, re­tail­ers should start pass­ing along sav­ings,” he said. “The mar­ket will force the re­tail­ers to pass the sav­ings along, other­wise they’ll lose busi­ness. Even though it’s not re­quired in the law to pass it on, I would be shocked if they don’t, to­tally shocked.”

For banks, the debit card caps are a dev­as­tat­ing blow that will cost them about $16 bil­lion a year, or up to 80 per­cent of their prof­its from debit cards.

But banks say it’s con­sumers who will ul­ti­mately pay for these losses. It’s a “math­e­mat­i­cal cer­tainty” that banks will com­pen­sate with new fees in other ar­eas, Mr. Hunt said. That could mean new charges and fees for check­ing, debit and on­line ac­counts. It could also lead banks to drop check­ing ac­counts for cus­tomers with low ac­tiv­ity or bal­ances un­der $200.

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