Durbin Blasts Big Banks’ Efforts To Stall New Debit-Interchange Rules

The delay some lawmakers are seeking in implementing proposed new debit-interchange rules would represent a “huge handout” to large banks that do not deserve another bailout by consumers and businesses, Sen. Dick Durbin, D-Ill., told reporters March 24 during a teleconference outlining his opposition to a delay.

“The biggest banks who have the lion’s share of transactions on these debit cards and the credit card companies are really not the most popular political figures in Washington, and they’re letting the credit unions and the community banks do the work” of lobbying against the proposed rules, Durbin said, noting that debit interchange amounts to some $1.3 billion per month that merchants pay as part of the discount rate for accepting debit card transactions.

Though financial institutions with less than $10 billion in assets are “largely and overwhelmingly excluded” from the proposed rules, which would cap debit interchange at 12 cents per transaction,” smaller institutions “are arguing just the opposite” in what has become “a very interesting lobbying” by debit-issuing banks, Durbin said.

The Fed is on track to issue final rules on April 21, Durbin said, adding that proposed legislation that aims to delay implementation by up to two years to study its potential effect “is a smokescreen, as far as we’re concerned” (see story).

In recent years payment card interchange has been the subject of nine congressional hearings and three separate studies by the General Accountability Office, Durbin said. “We don’t need a study; we need action,” he said.

Durbin said he knows from “early reports” that the Fed has determined that the current cost of a debit transaction is 40 cents and the “actual cost is 10 cents.”

Ed Mierzwinski, program director at U.S. Public Interest Research Group, who joined Durbin on the call, said the proposed new debit rules will bring “new efficiency” to the debit market, including sparking a movement toward PIN debit versus more-costly signature debit that comprises a larger share of all debit transactions.

PIN-debit transaction have “seven times less fraud” than signature-debit transactions, Mierzwinski contended, noting that signature debit is “an inherently more dangerous, more reckless, more fraud-prone product.”

If the proposed rules result in banks eliminating debit-rewards programs, as some have indicated (see story),  that would be a positive for consumers because “rewards in the debit market are only there to get consumers to switch from PIN to signature. ... Getting rid of rewards, I think, is good for consumers,” Mierzwinski said.

Art Potash, CEO of Chicago-based Potash Bros. Market, who was also on the call, said the proposed new debit-interchange rules are long overdue, as debit and credit cards comprise some 70% of all transactions at his chain of three supermarkets and are the only operations cost he cannot negotiate or reduce. Potash said the retail industry guarantees that with lower operating costs, merchants lower their prices to remain competitive, and that will be the likely outcome of the proposed rules.

“In tough economic times, the customer could use a break,” Potash said.

Asked how he plans to block lawmakers’ efforts to delay implementation of the rules, Durbin said that since his amendment originally required 60 votes, it is only fair that it will require 60 votes to reverse it.

Many observers have said it will be an uphill fight for lawmakers to gather the 60 votes needed to push the proposed legislation through that would delay the rule’s implementation.

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