WASHINGTON—The battle over interchange fees intensified Thursday as banks and retailers lobbied hard over an amendment to reform how merchants pay for card processing.
It was still unclear by deadline whether the Senate would vote on the measure, which would give the Federal Reserve Board authority to control the fee system for debit cards.
The amendment by Sen. Richard Durbin, D-Ill., has been steadily attracting more support but was attacked this week by a range of groups, including community bankers and credit unions, who argued it was a threat to their ability to issue debit cards.
“It’s a tough one politically for many people but it’s pretty clear to me,” Durbin said at a press conference.
Durbin sought to calm fears about the measure’s impact by adding language that would exempt all financial institutions with less than $10 billion of assets. Previously, it had exempted banks with less than $1 billion of assets.
“I can’t tell you how many glowing speeches are given in Congress on behalf of small businesses,” Durbin said Wednesday on the Senate floor. “We all know how much they mean to us, in our communities and in our overall economy. Well, here’s our chance.”
But his revisions did not appear to help, as both community bankers and credit unions said Thursday they would fight the amendment tooth and nail. They said retailers could use the amendment to push for a better deal by using debit cards from large banks, thus leaving smaller institutions at a disadvantage.
“While we appreciate Sen. Durbin’s efforts to exempt community banks from the harmful impact of his amendment, the fact is that the purported ‘carve out,’ no matter how large, would simply not help consumers and their local community banks,” Camden Fine, the president of the Independent Community Bankers of America said in a press release Thursday.
At issue are the fees issuers charge merchants each time a customer swipes their credit or debit cards when purchasing goods. Retailers have argued for years that the fee system–controlled by Visa Inc., MasterCard Worldwide and other networks–is anti-competitive and impedes their ability to profit from sales.
Durbin’s amendment would focus primarily on debit cards.
It would task the Fed with establishing regulations to ensure debit card interchange fees are “reasonable and proportional” to the costs incurred by issuers to process a payment.
In addition, merchants could without penalty set minimum transaction levels for allowing electronic payments. Under current law, Visa and MasterCard can fine retailers if they set such minimum levels.
The amendment also would allow retailers to give customers incentives for using one credit card network–which may charge a lower interchange fee–over another.
But a key complaint among banks and credit unions is that while supporters of the legislation claim merchants could not discriminate against certain issuers, including small institutions not affected by the regulations, opponents said nothing in the amendment bars such discrimination.
“There’s no language to” prevent discrimination. “There is nothing in there on that issue,” Ken Clayton, the senior vice president of card policy at the American Bankers Association, said in an interview.
“When you have the government set artificially low rates, any community bank trying to set a higher rate will be ignored by the retailer, which means customers will leave small banks in flocks to big banks.”
Durbin said that is not the case. Under this amendment, “Merchants’ programs “can’t discriminate as to the issuer, … only as to the network, either Visa or MasterCard,” he said.
Retailers say reining in the fees would bring instant savings for consumers.
The amendment would “combat the monopolistic pricing that Wall Street is imposing on small businesses and consumers across the United States,” said Hank Armour, the chief executive officer of the National Association of Convenience Stores.
The future of the amendment was unclear. While it had been expected to come to a vote Thursday, some sources said it might not face a vote until next week.
