Lawmakers from both parties embarked Tuesday on an uphill battle to delay a controversial law that would reduce the fees banks receive from merchants each time a debit card is swiped, following weeks of fervent lobbying by the financial industry.
Bills introduced in the House and Senate would require a government study of the interchange, or “swipe,” fees. The Federal Reserve could then be forced to rewrite regulations that slash the fees by 70 percent. Those rules, which are expected to cost banks billions of dollars annually, are slated to take effect July 21.
The Senate measure, introduced by Sen. Jon Tester (D-Mont.) and backed by eight lawmakers from both parties, would put off implementation of the law for two years. The House version, from Rep. Shelley Moore Capito (R-W.Va.), calls for a one-year delay.
“I don’t think everybody had an opportunity to think about possible unintended consequences,” Tester said. “I think there is a little bit of buyer’s remorse.”
Congress passed the law asking the Fed to examine swipe fees last summer as part of its broader overhaul of the nation’s financial system. Retailers had long complained that they had little power to negotiate the fees — which are set by debit card networks such as Visa and MasterCard but paid to banks — resulting in higher prices for consumers. The costs are particularly onerous for smaller merchants, who say the fees can amount to their second-highest cost after labor and often outweigh their profit on small purchases.
“We’re beginning to refer to this as the Tester bailout,” said Mallory Duncan, general counsel for the National Retail Federation, a trade group.
Tester acknowledged that the bill faces an uncertain fate in the Democrat-controlled Senate, particularly since Majority Whip Richard Durbin (D-Ill.) sponsored the original law and has vowed to fight any delay.
On Tuesday afternoon, Tester said he had not yet spoken to Majority Leader Harry Reid (D-Nev.) or banking committee chairman Sen. Tim Johnson (D-S.D.) about scheduling the bill for a vote. But one Democrat, Sen. Ben Nelson of Nebraska, who supported Durbin last summer, is now co-sponsoring Tester’s bill.
Part of the concern surrounding the interchange law has been its impact on community banks, which say they may be affected by the law despite a carve-out for banks with assets less than $10 billion. That’s because one of the law’s provisions allows retailers to choose the debit card network that charges the lowest swipe fees. Several regulators, including Federal Reserve Chairman Ben Bernanke, have questioned whether the exemption for smaller banks will be effective.
In addition, banks have said the expected reduction in the fees has already prompted them to curtail popular debit card rewards programs and could raise the cost of basic checking accounts, particularly as other streams of revenue such as overdraft charges have also come under tighter scrutiny.
“The financial ramifications are so enormous that they have to explore every avenue to combat the debit interchange rules,” said Jaret Seiberg, policy analyst at MF Global.
The swipe fees on debit cards average between 1 and 2 percent of each purchase and totaled $16.9 billion in 2009, according to the Fed. The proposed regulations would limit the fees to 7 to 12 cents. Credit cards, which can carry significantly higher interchange rates, are not covered by the law.
Several consumer advocacy groups joined retailers in opposing a delay to the law on Tuesday, including Public Citizen and U.S. PIRG. Still, the Consumer Federation of America has asked the Fed to increase its cap to prevent banks from raising other fees to consumers.