Restrictions on interchange fees look likely

Jan. 1, 2020
Aftermarket retailers are crossing their fingers that Congress approves a Senate amendment giving stores relief from the high fees banks charge them to clear debit card purchases.

Aftermarket retailers are crossing their fingers that Congress approves a Senate amendment giving stores relief from the high fees banks charge them to clear debit card purchases. These are also called "swipe" fees. The fees range between 1-3 percent per purchase, with smaller retailers paying the highest fees. Opponents of the fees argue they are out of proportion to the banks costs.

Sen. Dick Durbin (D-Ill.), the second ranking Democrat in the Senate, included an amendment in the Wall Street reform bill the Senate passed in late May requiring the Federal Reserve to essentially approve debit card (but not credit card) swipe fees based on whether they are reasonable. The Durbin amendment to the Restoring American Financial Stability Act passed by a vote of 64-33.

The House version of the Wall Street reform bill does not include an interchange fee provision. So a House-Senate conference committee which met starting in mid-June had to decide whether to keep the Durbin amendment in the final bill, eliminate it or change it.

Going into that conference, Max Gleischman, a spokesman for Durbin, expresses confidence that the Durbin amendment will go to President Obama as part of the final bill. "We are in a strong position," he explains, "because both Dodd and Frank support the amendment." Sen. Chris Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.) are chairmen of the Senate Banking and House Financial Services Committees respectively. The Wall Street reform bills went through their committees, so they are the key decision makers in the conference committee, which includes other members of both committees.

The Automotive Aftermarket Industry Association supports the Durbin amendment which does two things. First, the amendment would direct the Federal Reserve to issue regulations to ensure that interchange fees imposed on debit card transactions be “reasonable and proportional” to the cost incurred in processing the transaction.  Second, the amendment provides relief for merchants, grocers and their customers by preventing card networks like Visa and MasterCard from: prohibiting sellers from offering discounts to use one card network as opposed to another; prohibiting sellers from offering discounts to customers for use of a particular form of payment (cash, check, debit card, stored value card or credit card); and prohibiting sellers from setting maximum or minimum transaction amounts for a form of payment on credit transactions.

Visa, MasterCard and big banks oppose the measure, which exempts credit unions and community banks with assets of less than $10 billion. But credit unions and small banks oppose the amendment anyway. Durbin complains that the two credit card giants are threatening to make changes to their small bank interchange fee rates and to their network operating rules, neither required by his amendment.

The banking industry is concerned the amendment only requires the Federal Reserve to consider the cost of processing purchases and that the provisions do not take into account the substantial operational costs involved in debit cards, such as maintaining the infrastructure and protecting against fraud. Banks also warned that the banks will need to charge more to customers to cover their costs while retailers will pay almost nothing.

Although his members are theoretically exempt, Daniel A. Mica, president and CEO of the Credit Union National Association (CUNA), sent a letter to every member of the Senate stating his organization’s opposition to the proposed legislation. The Durbin amendment “would make changes to the card payments system which will increase costs and reduce choice for consumers and will give the largest merchants further leverage to harm small businesses, which are already under significant pressures in this difficult economy,” Mica wrote.