Lawmakers try to stall law on cutting debit card fees

WASHINGTON  Amid intense lobbying by the banking industry, a bipartisan group of lawmakers is pushing to delay a law to dramatically reduce the fees banks collect from retailers every time a debit card is swiped.

The pitched battle over "swipe," or interchange, fees pits merchants such as retail giant Wal-Mart against Wall Street banking firms and credit-card companies. It marks the first big showdown over the scores of regulations the federal government must write to implement a sweeping financial regulation law Congress passed last year.

"It's one of the bigger special-interest battles I have seen in quite some time," said Travis Plunkett, legislative director of the Consumer Federation of America. "It's like World War I out there. The trenches are dug, and anyone who wanders into no man's land gets shelled."

The lobbying war centers on a provision championed by Illinois Sen. Dick Durbin, the No. 2 Democrat in the Senate, that would require the Federal Reserve Bank to issue rules that place "reasonable" limits on the fees. The limits would go into effect in July.

Debit-card use soars Total U.S. debit-card purchases by year: (in billions) Source: The Nilson Report

Draft Federal Reserve rules would slash more than $12 billion in bank revenue annually by capping the fee at 12 cents per transaction. Currently, banks charge an average of 44 cents per transaction, according to a recent Federal Reserve study.

Seventeen senators, led by Sen. Jon Tester, D-Mont., have sponsored a bill that could come to the Senate floor as early as this week that would delay the rule by two years and require a one-year study. Tester, who serves on the Senate banking committee, counts the political action committees and employees of Wall Street firms among his top campaign contributors, according to a tally by the non-partisan Center for Responsive Politics. A House bill, co-authored by Rep. Shelley Moore Capito, R-W.Va., and Debbie Wasserman Schultz, D-Fla., calls for a one-year delay.

Banks have decried the proposed cap as price-fixing by Congress and say consumers will feel the pinch as they take other steps to make up for the lost revenue, such as increasing ATM fees and eliminating free checking accounts. JP Morgan Chase, for instance, is ending its debit-card reward program.

"If you are nicking into our profits, we will find a way to recover that," said Dan DeLawder, the chairman and CEO of Park National Bank in Newark, Ohio, who helps lead an American Bankers Association task force on the fees.

Durbin's measure would exclude smaller banks from the caps if they have less than $10 billion in assets. The banking industry, along with Federal Reserve Chairman Ben Bernanke, say small banks still could be hurt. Merchants might respond by rejecting debit-card payments from banks with higher fees. This week, Bernanke told lawmakers the Federal Reserve would miss an April 21 deadline to write final rules on swipe fees because of the "extraordinary volume" of comments on its draft proposal.

Tester said he's pushing to delay the new limits to protect community banks in rural states. "I've never been about the big guys on Wall Street. They are big enough to fend for themselves," Tester said. "This bill is about protecting consumers and protecting small businesses."

The fight involves interests with substantial influence in Washington. Commercial banks alone pumped $57.2 million into lobbying last year, according to the Center for Responsive Politics, while retailers spent $40.2 million.

Big players include the Electronic Payments Coalition, which includes Visa, Bank of America and the Financial Services Roundtable. The coalition runs TV ads that slam the limit as an effort by Congress to plunder consumers' wallets and pump the money into retailers' coffers. The group has helped fund a radio ad in Montana, praising Tester for attempting to put the brakes on the new rules.

Retailers have their own group, the Merchants Payments Coalition, that's fighting hard against efforts to delay the cap. It argues that consumers pay more for goods and services to compensate for excessive swipe fees.

The coalition, which includes supermarkets, truck stop owners, convenience stores and drug store chains and an array of other businesses, spent $600,000 on lobbying last year — up from $380,000 four years ago, Senate records show. Retail groups that are part of the coalition recently ran radio ads in Tennessee, criticizing Sen. Bob Corker, R-Tenn., for co-sponsoring Tester's bill.

Dennis Lane, who owns a 7-Eleven in Quincy, Mass., said banks have had the upper hand for years, setting interchange fees over which retailers had no control. "I can negotiate with everybody in my business world but the financial services industry," he said.

The bill that would delay the Durbin measure faces an uphill battle in the Senate, where it passed with a 64-33 vote last year.

The Consumer Federation's Plunkett fears a legislative attempt to delay the swipe-fee limit could provide an opening for lawmakers to "gut other parts" of the financial services legislation, such as a new consumer watchdog agency opposed by banks.

Durbin has urged opponents to wait until the Federal Reserve issues its final rules before waging all-out war against his provision. "I don't have a great deal of sympathy for the Wall Street banks," he said. "We bailed them out of their last mess, and now to give them this huge handout, I think, is totally unfair to consumers and businesses."