Electronic-payments tax: a proposal that won't die.

Banker and their corporate customers were relieved when a proposal that would assess a payment-system tax did not make it into the 1991 Federal Deposit Insurance Corp. Improvement Act. But they say they haven't heard the last of the measure.

The tax would be aimed at helping Washington bankroll the massive thrift industry bailout. Bankers and lobbyists are gearing up for a fight in the spring, when Resolution Trust Corp. refunding measures go before Congress.

"This issue is not going away," said Frank Curren, a spokesman for the Treasury Management Association.

The defeated proposal called for a "user fee" on interbank corporate payments, such as those that flow over the Fed Wire or Chips electronic networks. In the weeks before the final vote on the banking bill, Mr. Curren's group called on dozens of banking and finance trade groups to protest the measure, which is being pushed by Sen. John Kerry, D-Mass.

Sen. Kerry said he sees a user fee as a way to make corporate interests finance a "pay as you go" thrift bailout.

He proposed an amendment to the banking bill that would have imposed a user fee on paper and electronic clearance transactions, book-entry securities settlements, and most other corporate payments over the Fed Wire, Chips, and probably the automated clearing houses.

The amendment lacked enough support to be included in the banking bill. The wholesale electronic banking community lobbied against the measure, saying it would essentially amount to taxation of funds transfers.

Forcing Business Offshore

Such a tax would cost banks and their corporate customers millions of dollars a year, which would drive up bank service fees and cause businesses to use offshore institutions and payment networks to avoid the fee, the measure's opponents said.

Sen. Kerry's aides vow to reintroduce the user fee and other "pay as you go" proposals in the spring.

"Of course it's going to resurface," said Jonathan Winer, counsel to Sen. Kerry. "Kerry will propose a pay-as-you-go plan in the spring."

"Kerry suggested the Federal Reserve come up with an alternative to the user fee, and they were not able to identify another way of raising funds for the thrift bailout," said Mr. Winer.

Passage Deemed Unlikely

Electronic funds transfer executives said they expect the issue to resurface, and the banking industry must keep up lobbying efforts to defeat it, they said.

Elliott C. McEntee, president of the National Automated Clearing House Association, based Herndon, Va., said a letter he got from House Banking Committee Chairman Henry B. Gonzalez implied that "it's not a dead issue. We plan to keep track of every move of that bill because it could have a devastating effect on our industry."

However, some industry representatives believe that the bill will get little support the second time around.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER