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Victory for Wal-Mart …

The merchant lobby has long positioned interchange fees on debt transactions as a small-business issue. Mom-and-pop gas station and convenience store owners were reliably trotted out at congressional hearings and in local news articles to describe how fees for accepting payment cards were squeezing their profit margins. But Visa Inc. Chairman and Chief Executive Joseph Saunders offered a powerful counter-narrative last week — perhaps too late, given that the Senate adopted an amendment to the financial reform bill giving merchants much of what they've wanted for years. "This is a victory for Wal-Mart," Saunders said during an investor presentation. "This is a big-box thing."

The amendment would give the Federal Reserve Board authority to control debit fees. It would also let merchants set minimum purchase amounts for credit and debit card purchases, without being subject to a penalty by the card networks. And it would let retailers give customers discounts for using one credit card network — which may charge a lower interchange fee — over another.

Institutions with less than $10 billion of assets would be exempt from the Fed's price controls. But bankers have called that 11th-hour concession useless. If Bank of America and JPMorgan Chase are required to cut their fees, the bankers argued, First National Bank of Anywhere would have to follow suit to stay competitive.

Saunders reiterated that argument during his presentation.

"What are you going to do?" he asked. "Go [to the] merchant and tell them, 'you can discount or set minimums, do whatever you want — and by the way, if anybody is banking with a small bank, you are going to pay more for that transaction'?"

… or for Consumers?

A Viewpoint article by Eric Grover of Intrepid Ventures criticizing the interchange amendment as both anticompetitive and anticonsumer drew a sharp response from Constantine Cannon LLP, a law firm specializing in antitrust litigation. "The high interchange fees that Visa has historically set for its debit products — particularly its inferior, fraud-prone signature debit products — reflect nothing other than a malevolent and systematic exercise of market power over merchants," said Matthew Cantor, a partner, and Jeffrey Shinder, the managing partner, in the firm's New York office. They said interchange fees are "essentially a hidden consumption tax that consumers pay each time they use a Visa debit card to complete a transaction. To make matters worse, this hidden tax is incredibly regressive; it causes cash customers, many of whom live paycheck-to-paycheck in this tough economy, to unknowingly subsidize the generous rewards the affluent enjoy."

Cantor and Shinder conceded that interchange fees "may perform a valid function when one side of the market bears disproportionate costs and would not participate without a transfer giving it adequate incentives. But they are hardly necessary. Numerous debit systems around the world, including the one run by our neighbors in Canada, thrive and generate transaction volume that far surpasses the U.S. system without any interchange fees."

Doubt on Ally Bank's Rep

A survey measuring the reputations of 30 large U.S. banks also stirred emotions. Peter Johnson, the chief executive of American Federal Savings Bank in Helena, Mont., took issue with the good marks Ally Bank earned for innovation. The fledgling online retail bank subsidiary of GMAC LLC was ranked No. 3, behind New York Community Bank and SunTrust Banks Inc.

"Really?" Johnson asked. "The same former GMAC Bank that took billions of government money and has ignored the Federal Deposit Insurance Corp.'s restriction on rates that can be paid! Either the survey is flawed, or the fancy ad campaign by Ally has really fooled the public."