Delay? Proceed? Congress Debates Interchange's Fate

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WASHINGTON-A powerful group of banks and credit unions convinced Congress last week to introduce a bill that would delay implementation of the Federal Reserve's rule capping fees in debit interchange, but the bill faces a steep climb as the deadline for final passage of the rule is rapidly approaching.

Separate bills introduced in the House and Senate would delay the rule for as long as two years while the Fed and regulators, including NCUA, study how the exemption for credit unions and banks under $10 billion might be made to work better.

"The hastily passed Durbin amendment will have numerous unintended consequences for debit card users, including reduced access and increased fees. I'm sympathetic to retailers' concerns and am open to a better solution, but the Durbin amendment isn't the answer," said Sen. Bob Corker, a Tennessee Republican.

But the Senate bill faces major obstacles, including a pledge by Sen. Dick Durbin, the Illinois Democrat and Assistant Senate Majority Leader who crafted the measure, to do everything he can to stop efforts to delay the rule. "Every month we delay limiting the amount banks and credit card companies charge merchants means another $1.3-billion bailout for Visa, MasterCard and their big bank allies," said Durbin, shortly after introduction of the bill. "The $13-trillion banking industry doesn't need another handout-especially one paid for by small business and American consumers. I will strongly oppose any attempts to line the pockets of the credit card giants and Wall Street banks by delaying this common sense, pro-consumer legislation."

The growing battle over debit fees comes as new information shows that debit fees paid by merchants for debit transactions grew in 2010 to an estimated $20.5 billion, from $16.9 billion in 2009. Credit unions are estimated by CUNA to have received as much as $2.6 billion of that.

Last year's overwhelming vote for the Durbin amendment to the Wall Street reform bill known as Dodd-Frank, indicates the uphill struggle credit unions and banks will have to delay the action, according to credit union lobbyists. The vote was 64-to-33 in favor, with no debate. Since seven yes votes and seven no votes have left the Senate since then, the credit unions and banks will need some 20 senators to change their votes, or at least agree to delay implementation of the rule.

But time is running short, according to Ryan Donovan, senior lobbyist for CUNA, referring to an April 21 deadline for the Fed to approve a final rule and a July 21 implementation deadline. "There's a very short calendar," he said, noting that Congress will be on recess this week, then two weeks in April, another week in May and at least one week in July. That leaves little time for lawmakers to debate and review the delay efforts.

Brad Thaler, senior lobbyist for NAFCU, said the credit unions and banks-joined in a powerful lobby called the Electronic Payments Coalition, which also includes Visa and MasterCard-are counting on the fact that many lawmakers voted for the Durbin amendment with promises that the exemption would ensure that the cuts in interchange do not affect credit unions and community banks, but the Fed's proposed rules will be hard-pressed to protect them. Fed Chairman Ben Bernanke said as much during recent congressional testimony.

That's because the proposal would slash the fees paid to the largest banks and credit unions-those over $10 billion-by as much as 70% to an average of 12 cents a transaction. But observers note the lower fees charged by those institutions-which control more than 80% of the market-would either force the exempt organizations to lower their own fees in order to compete with the lower-fee cards, or lose more business to the banking giants.

'Beards' For Big Card Processors?

The focus on the unholy alliance between credit unions and banks comes as the American Bankers Association renewed its attacks on credit unions and their efforts to increase the member business lending caps.

Sen. Durbin criticized the partnership, saying the big banks and Visa and MasterCard are using the credit unions and community banks as fronts for their own lobbying efforts. He called them the "beards"-for Visa, MasterCard and the big banks, who are very unpopular on Capitol Hill.

"Big Wall Street banks that dominate the debit cards market suffer from the same problem," he said. "So what do they do? They have beards... Their agents are the credit unions and community banks."

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