Big Debit Card Changes Coming

Big changes are ahead for debit cards that retailers say will ultimately benefit consumers, though the banks beg to differ. A months-long, multi-million-dollar lobbying push by the nation’s largest banks to delay those debit card changes ended in failure Wednesday afternoon, clearing the way for new rules to take effect in July.

“This is huge,” says Ed Mierzwinski, director of the consumer program at the U.S. Public Interest Research Group.

The fight is over debit card swipe fees, known in the industry as interchange fees. Every time you swipe your debit card, your bank and one of the credit card networks (like Visa or MasterCard) charge the merchant a fee for processing the transaction. Those fees rose dramatically in recent years; currently, the average fee is 44 cents per swipe.

[Related articles: The Durbin Amendment]

The Durbin amendment, passed last year as part of the sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act, requires the Federal Reserve to write rules limiting interchange fees to a “fair and reasonable” rate. The Fed decided to cap the fees at 12 cents.

That decision elicited protests from bankers, who argued the cut in revenue would force them to gut free checking accounts, and could even force some smaller banks to close. In response, the banks ramped up a massive lobbying effort to change, repeal or delay the Durbin amendment. Banks eventually threw their support behind a bill introduced by Senators Jon Tester (D – Mont.) and Bob Corker (R – Tenn.) that would delay implementation of new swipe fees by a year, and give the Fed more power to change the 12-cent cap.

Pretty soon, lobbyists started calling the Durbin amendment the “K Street Full Employment Plan,” since everyone on Washington’s famous lobbyist row seemed to have a Durbin-related contract. Seemingly every available ad space on every subway car in the city has been plastered with ads by the banking industry supporting the Tester amendment.

“The ads are everywhere,” says Ed Mierzwinski, director of the consumer program at the U.S. Public Interest Research Group. “People outside of Washington may not have heard much about this. But here, it’s everywhere you go.”

In the end, the banks’ efforts were for naught. The Tester/Corker bill won a majority of votes in the Senate, but it came up four votes shy of the 60-vote supermajority it needed to pass.

Bankers were angry at the loss.

“American consumers will now have to pay more for basic banking services, while big-box retailers go off and count their unjustified profits,” the American Bankers Association said in a press release.

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Retailers countered that the reform will actually save consumers $15 billion a year, since stores will pass on their lower interchange fee costs in the form of lower prices.

“Congress came to the right conclusion last year—hidden swipe fees charged by big banks have driven up prices far too much for far too long,” said Matthew Shay, president and CEO of the National Retail Federation. “This is a landmark victory for American consumers that will give them the break from skyrocketing swipe fees that they have been seeking for years.”

Even if the Tester/Corker bill had passed, banks faced an uphill battle to win any delay to the Durbin amendment. They would have needed to pass similar legislation in the House, presumably a relatively easy task given Republican control of that chamber. Next they would have needed to reconcile the two bills. And then, somehow, they would need the signature of President Obama, who signed Dodd-Frank into law last summer and since then has urged Congress to stop monkeying with it.

Even before Wednesday’s vote, it appeared increasingly unlikely that banks would be able to accomplish all that in time.

“I just don’t see how the banks can get anything done before the deadline,” says Malory Duncan, general counsel for the National Retail Federation.

The Durbin amendment is currently scheduled to take effect July 21.

Image: Patrick Hoesly, via Flickr.com