The Fed promises to enact rules that would cut most debit-card fees to seven to 12 cents per transaction, from 44 now.
WASHINGTON — The Senate on Wednesday refused to delay new rules that would sharply cut fees that banks charge retailers to process debit-card transactions.
The rules were a major part of the Dodd-Frank financial-regulation law passed last year. The Senate vote was one of the strongest challenges to the new law.
While 54 senators voted for the delay, the measure failed to garner the 60 votes required for it to pass under Senate rules. Forty-five senators, including Washington Democrats Patty Murray and Maria Cantwell, voted against the delay.
Still, the vote represented a remarkable, come-from-behind lobbying campaign by banks to recover from the anti-Wall Street drubbing they took during debate over financial regulation. The debit-card bill, sponsored by Sen. Dick Durbin, D-Ill., passed last year by a 2-to-1 ratio after little debate and no hearings.
The Wednesday vote, after a vigorous floor debate, was a victory for retailers who have complained that banks and the companies that control the largest debit-card networks, Visa and MasterCard, have raised fees consistently on debit-card transactions even as the market has grown rapidly and technology costs have declined.
Those fees topped $20 billion last year, according to industry reports.
The Federal Reserve, as guided by the new law, had proposed rules that would cut the average processing fee to seven to 12 cents per transaction, from 44 cents currently. Congress exempted small banks with less than $10 billion in assets, but banking regulators warned such a two-tiered fee system among banks would not be competitive. Opponents of the delay said all but 100 banks and three credit unions would be exempt from the restrictions.
The new regulations are scheduled to take effect by July 21. The Fed has said it intends to meet the deadline.
The vote also provided a victory for Durbin, who kept his debit-fee measure intact despite 12 senators’ switching their vote from supporting him last summer to now seeking a delay. Nine Democrats and three Republicans changed their votes.
By coming close to victory, however, banks likely are to be emboldened to fight other regulations being drawn up under the Dodd-Frank Act. Notably, bankers and business lobbies oppose the structure of the new Consumer Financial Protection Bureau, which is to take over regulation of mortgages and other consumer-related areas from other banking regulators.
Both sides sought to portray the fight as pitting big, well-financed interests against small-town retailers or banks.
Bank lobbyists said the rule would most harm small community banks and credit unions, while benefiting giant retailers such as Walmart and Home Depot that account for most debit-card transactions.
Similarly, a coalition of retailers framed the debate as the giant banks that issue the most debit cards — JPMorgan Chase, Bank of America and Wells Fargo — against mom-and-pop retailers.
Both arguments had elements of truth. Home Depot executives, for example, told financial analysts this year that a cap on debit fees could save the company $35 million a year. Banks, in a flurry of ads in subway cars and on television, portrayed the debit-fee reduction as a $12 billion gift to retailers. One print ad tried to argue that fee cuts would make debit cards so unprofitable that smaller banks and credit unions would charge for cards or raise fees on checking accounts or other services.
Edmund Mierzwinski, consumer program director for US PIRG, which represents state public interest research groups, said some banks might curtail rewards programs attached to some cards. But he said checking-account fees would not rise.
“There will be competition,” he said. “Banks will be forced to come up with innovative ways to lower costs in their card networks.”
Camden Fine, president of the Independent Community Bankers of America, challenged that, saying the Senate vote would mean “consumers of lower socio-economic status will get hammered” because bank fees would rise.
“Where do people think banks get the money to subsidize these products” like free checking accounts, he said. He also challenged assertions that stores would pass savings to customers.
“Does anybody not smoking dope believe merchants will pass some big windfall to consumers?” he asked.
Merchants, however, argue they will be forced to do so.
“The retail industry is the most competitive business environment going today,” said Brian Dodge, spokesman for the Retail Industry Leaders Association, which represents many large merchants. “There is no doubt competition would drive any interchange savings out of the system, which would be reflected by lower prices.”
Dennis Lane, who has owned a 7-Eleven store in Quincy, Mass., for 37 years, affirmed that. He said he pays $7,000 to $10,000 annually in fees.
“Whenever I can reduce my cost of doing business, any responsible retailer reduces costs to the consumer,” he said. He also said those savings could allow him to hire summer workers.
On the other hand, the president of a credit union in Mountain Home, Idaho, said slashing fees would have a huge cost for his business.
Curt Perry, president of Pioneer Federal Credit Union, says a 12-cents-per-swipe fee would cost him $780,000 a year. The new fee system would not take into account such expenses as covering fraud, which he said cost him $170,000 last year.
“We’d have to pass that on,” he said.
Seattle Times staff contributed to this report.
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