That helped escalate what had been an arcane debate about payment processing systems into an epic struggle between Wall Street and Main Street that repeatedly harkened back to the depths of the financial turmoil.
“This is an historic moment . . . when we decide whether or not the big banks are going to lose and the consumers are going to win,” said Sen. Richard J. Durbin (D-Ill.), whose original legislation was Tester’s target.
Swipe fees are part of the Dodd-Frank legislation that Congress passed last summer to overhaul the nation’s financial system and that the banking industry has tried to dismantle. Financial firms want to revamp the fledgling Consumer Financial Protection Bureau and tried to alter new oversights of the vast derivatives market. But Wednesday’s defeat could dampen any momentum.
“This tells you that the door is closed to revamping Dodd-Frank until after the 2012 elections,” said Jaret Seiberg, policy analyst at Washington Research Group. “The banks are still toxic, and they just don’t have the clout yet that they wielded prior to the crisis.”
Meanwhile, retailers tapped into consumer frustration over the sputtering economic recovery. Retail trade groups such as the National Retail Federation and the Retail Industry Leaders Association likened the fee, which averages 1 to 2 percent of the price of each transaction, to a hidden tax that drives up the cost for everyday goods and ate into the profits of small businesses. Durbin championed the cause as a way to save consumers money and boost the economy, and the measure passed the Senate last year with 64 votes.
The Federal Reserve then drafted regulations that would slash swipe fees, also known as interchange fees, by nearly 70 percent to a maximum of 12 cents per transaction. The final rules have not yet been issued. But the proposed reduction was bigger than banks had feared, and they wasted no effort in attacking the law.
According to the Sunlight Foundation, a nonprofit government watchdog, financial firms and their trade groups funneled $662,000 to lawmakers through the Electronic Payments Coalition political action committee during the first few months of the year. The industry plastered ads across the Washington area’s Metro trains and convened a global security summit to highlight the costs of preventing debit card fraud — an expense that it said could not be covered in 12 cents a swipe.
“You’ll find the biggest banks in America waiting in the wings . . . praying this is going to pass,” Durbin said Wednesday.
Community banks have been just as vocal in their opposition as the largest firms. The law excuses institutions with assets of less than $10 billion, but community banks worry whether the exemption is airtight. After the vote Wednesday, Independent Community Bankers of America chief executive Cam Fine said he was concerned that small banks will raise fees and turn off low-income consumers.
“It’s a real kick in the teeth to local customers who rely on community banks that offer the valuable banking services they have come to expect,” he said in a statement.
Tester echoed those sentiments, raising fears that the lower fees may cause some banks to close — a devastating prospect in the small towns of his home state of Montana. He bristled at Durbin’s accusations that gutting the law amounted to “a second installment” of the $700 billion government program to bolster troubled banks.
“Look at me. Do I look like a banker?” Tester said Wednesday. “I wouldn’t be supporting this if it were a bailout.”
But Sen. Bob Corker (R-Tenn.), who co-sponsored Tester’s bill, said lawmakers were loath to change their votes on the issue and support the proposal. After the tally Wednesday fell six short of the 60 votes needed to prevent a filibuster of Tester’s amendment, Corker dismissed any industry hopes of a second chance anytime soon.
“I got other fish to fry, and we pretty well cooked this one,” he said.