WASHINGTON — Banks and credit unions see their best chance in seven years to repeal the provision of the Dodd-Frank Act that set price caps on debit interchange fees, pointing to studies that show most of the benefits have gone into retailers’ pockets.
But merchants, armed with their own statistics that say it helped consumers, are confident they can prevent Congress from taking up the issue again.
With both sides gearing up for another battle, even lawmakers are unsure who will prevail. In interviews, several sympathetic to financial services’ concerns said it’s an important issue, but acknowledged its one that Congress would probably rather avoid.
“It is not an easy vote,” Rep. Bill Huizenga, R-Mich., said in a recent interview. “I think it has a better chance at this point” of being repealed in this Congress, “but certainly not a given by any stretch of the imagination.”
The limits on debit interchange fees were part of an amendment sponsored by Sen. Richard Durbin, D-Ill., to the Dodd-Frank Act in 2010. The Fed later finalized a rule that set the cap generally at 21 cents (with some allowance for fraud prevention), and bankers have been fighting it ever since.
But bankers believe they finally have a real shot at repealing it this year. They cite a bill by House Financial Services Committee Chairman Jeb Hensarling, R-Tex., that would eliminate the Durbin amendment as part of a regulatory relief package.
They also argue that merchant groups are spread thin as they push back against a border-adjustment tax that was included in the House GOP tax plan the Trump administration hopes to pass later this year.
“Right now, the border adjustment issue is the be-all, end-all all for the retailers,” said Palmer Hamilton, a partner at Jones Walker who lobbies for the financial services industry.
Francis Creighton, executive vice president of government affairs at the Financial Services Roundtable, noted that Republicans are philosophically opposed to this kind of government intervention in the market.
“Conservatives don’t believe in price fixing and the president will sign that bill” to repeal the Durbin amendment, “so we should do it now,” Creighton said.
Huizenga said he believes a provision repealing the Durbin amendment can clear the House Financial Services Committee. But whether it can go beyond that is unclear.
“The fight will be on the floor,” Huizenga said. “I think it will be a bipartisan opposition and a bipartisan support.”
Bankers point to a Federal Reserve Bank of Richmond study released in 2014 that found that merchants might not be passing along the cost savings from lower interchange fees to consumers — which was the intent of the Durbin amendment.
“This has been a windfall for the merchants at $6 to $8 billion a year, so we calculate that to be roughly $42 billion that they have pocketed,” said Molly Wilkinson, executive director of the Electronic Payments Coalition.
But merchants and retailers point to other studies and facts telling a different story. They say without the amendment, consumers and small businesses would be hurt to the benefit of Wall Street banks and Visa and Mastercard.
“The election did show that the voters have no interest in big Wall Street banks being able to collude on prices,” said Mallory Duncan, general counsel for the National Retail Federation. “They are much more interested in having small Main Street businesses do well.”
Prior to the amendment, merchants claimed that banks colluded with Visa and Mastercard to charge exorbitant interchange fees.
“The banks up until then had been linking arms under the Visa and Mastercard umbrella and charging exactly the same price. On this one item the banks didn’t compete,” said Duncan, who added that the amendment said to the banks, “If you are linking arms we are going to set a limit on what you can charge.”
The merchant groups argue that including a repeal of the interchange limits will be a death knell to Hensarling’s reg relief bill.
“If the committee wants to get something enacted, they are going to have to do it without the debit reforms in the package,” Duncan said. Congress is “not going to give that any attention if that means repealing debit reform. The chairman is going to have to decide if he wants 90% of his bill or none of his bill.”
Both financial services and merchant lobbyists claim a Senate whip count tilts in their favor. The House is a little less certain, according to Hamilton.
“In the House, there has never been a vote on [the Durbin amendment] at all, and I think whether you are a retailer or a bank, you would be blowing smoke if you claimed you knew how a House floor vote would come out,” Hamilton said. “There is simply no past benchmark in order to predict a floor vote now.”
But the financial services industry says it has an edge in the House with Hensarling’s Choice Act and a healthy Republican majority. They also note that the Durbin provision was added to Dodd-Frank via the Senate, and was not voted on by the House.
“You do have the precedent of one chamber putting something in and it ending up in the final package,” said Bradford Thaler, vice president of legislative affairs at the National Association of Federally-Insured Credit Unions.
There are also discussions about a compromise on the issue. One idea is a partial repeal under which fee limits would remain in place for smaller companies but financial services companies could charge higher fees to big-box retailers.
Such a distinction could be challenging, said Lawrence Kaplan, of counsel at Paul Hastings.
“With banking, it is easy to make those distinctions because they made them throughout Dodd-Frank,” Kaplan said. “If you start doing that in retail space, you are segmenting the companies and you are treating them in a way they have never been treated before, i.e., big-box stores versus Main Street stores.”
Groups representing both the merchants and banks bristled at the suggestion.
“We support a full repeal of the Durbin amendment. We don’t support any compromise on it,” Thaler said.
The Durbin amendment already included a compromise when it initially passed, exempting financial institutions with assets of less than $10 billion. But small banks and credit unions claim the policy hasn’t worked.
“If you have any type of price controls or undue influence in the market, it acts as a price control,” Thaler said. “The way the Durbin amendment was designed, now the $10 billion cap … acts as an artificial force in the market and market forces are going to drive rates down, and that is what we have seen.”