Visa Inc. confirmed Wednesday that it has retained counsel and said it is weighing its next moves in fighting debit interchange regulation, but it stopped short of specifying what strategies it might use in the weeks ahead.
"We are looking at various litigation options," Visa's general counsel, Josh Floum, said in an interview. "We find the Durbin amendment to be so rushed and ill-conceived that we're certainly open to all avenues to set things straight."
He, along with David Kemper, chairman and chief executive of Commerce Bancshares Inc.; Doug Kantor, partner at Steptoe & Johnson; and David Seltzer, vice president and treasurer of 7-Eleven Inc., are scheduled to testify at Thursday's interchange hearing before the House Financial Services Committee. Federal Reserve Board Gov. Sarah Bloom Raskin will testify on a separate panel.
One lawsuit is already pending on the Fed's rule, which was called for under the Dodd-Frank Act, enacted in July. The Fed has proposed to cap the debit interchange fees at 12 cents per transaction.
TCF Financial Corp. sued the Fed in October, claiming that the so-called Durbin amendment is unconstitutional because it would force some banks to offer debit interchange below the cost and would exempt smaller banks from the new rule.
Floum made a similar argument.
"There are really two victims of the Durbin amendment," he said. "The first are consumers, and the second are the credit unions, community banks and other smaller financial institutions, who although are theoretically exempted from the Durbin amendment, in actuality are straight in its crosshairs."
Sen. Richard Durbin has tried to defend the amendment as banking trade associations have been lobbying lawmakers to kill the statute.
Floum said one reason for the sharp tone of the debate is that the amendment is based on several misconceptions and was never given an opportunity to be properly vetted.
"The senator does not appreciate that interchange is a mechanism that's used by every large payments network with multiple stakeholders," Floum said. "He doesn't understand that the retailers' claims that interchange is price fixing and unlawful have been rejected in every court of law. He doesn't understand that the interchange rates are reasonable and competitive. And he doesn't understand that without uniform interchange rates the small financial institutions, the smaller merchants, and low-income individuals would fall out of the network."
Though a final rule is due in April, those who oppose the provision expressed hope that Congress will suspend implementation and call for a study to highlight the unintended consequences of the statute.
Some lawmakers appear open to that.
Rep. Spencer Bachus, R-Ala., speaking at a luncheon before the Women in Housing and Finance, listed his concerns on interchange. He was especially worried about the impact it would have on community banks and credit unions, and said it would "slow innovation."
"It couldn't have come at a worse time for the financial services industry" with community banks still wobbly and uncertainty over when the industry will fully return to profitability, Bachus said.
"The instructions that went to the Fed were pretty tight, and I think the answer at this time is under discussion. It's obviously a real challenge," Bachus said.
