Bankers, merchants debit card fight hits Senate

By Alan Fram

Associated Press

Published: Tuesday, June 7 2011 2:56 p.m. MDT

Senate Majority Leader Harry Reid of Nev. speaks to the media after the Democratic policy luncheon on Capitol Hill in Washington, Tuesday, June 7, 2011.

Alex Brandon, Associated Press

Enlarge photo»

WASHINGTON — In a heavily lobbied fight pitting financial institutions against merchants, supporters of the nation's banks tried pushing legislation through the Senate on Tuesday 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 approaching, perhaps on 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 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.

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