Treasury Estimates Big Savings From Interchange Bid

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WASHINGTON – The Treasury Department reported yesterday that the federal government, the nation’s biggest purveyor of credit and debit cards, would be one of the biggest beneficiaries of the interchange amendment to the bank bill, saving taxpayers as much as $40 million a year.

A new study by Treasury, which will be released tomorrow at a hearing held by Sen. Richard Durbin, the sponsor of the interchange amendment, shows the government could realize substantial savings if it were allowed to negotiate a separate government rate on financial transactions, a practice currently banned by Visa and MasterCard. Sen. Durbin has proposed legislation that would allow major entities, such as retailers and government agencies, to negotiate directly with card issuers and the networks on lower interchange rates. The bill, and a similar measure on the House, are not expected to be voted this year.

The federal government is among the largest public sector merchants, supporting more than 4,350 programs that use some form of credit or debit cards. For 2009 federal agencies accepted 80 million card transactions for a total of $8.6 billion and paid $116 million in interchange fees, according to Treasury.

The report contemplates bilateral negotiations between Treasury or other government agencies and/or Visa and MasterCard. Treasury says negotiation with the two companies is essential because they control the networks and process virtually all of the government’s card transactions.

The Treasury estimated annual cost savings of from 45 cents to 49 cents per transaction, or as much as $39 million.

Durbin, who is chairman of the Senate Appropriations Subcommittee on Financial Services, is holding tomorrow’s hearing as the Senate and House conferees are starting their efforts to combine separate bank reform bills, one of which includes Durbin’s amendment on debit card interchange. That amendment would direct the Federal Reserve to review the fairness of interchange fees on debit cards and order a reduction in fees if found to be unfair.

 

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