Lawmakers Agree to Limit Debit Card Fees

After Assistant Senate Majority Leader Dick Durbin (D-IL) announced that an agreement had been reached among Senate and House leaders that regulations on swipe fees charged by banks for debit-card transactions would remain in proposed financial reform legislation, Durbin noted to supporters of reform that Congress was being bombarded by bankers in opposition. At press time, the NRF  was strongly urging supporters of credit card reform to ramp up their own efforts.

The compromise -- reached with House Financial Services Committee Chair Barney Frank (D-MA) -- was the result of House-Senate committee negotiations on a final version of the Wall Street Reform and Consumer Protection Act that are expected to conclude on Thursday, June 24. Backers of the bill hope to bring it to a successful vote next week and to have it ready for President Obama's signature by July 4. Last week, ABA joined more than 200 national and state organizations representing a diverse array of small businesses in calling for the House to support Sen. Durbin's amendment regulating swipe fees charged by banks. The groups included the American Booksellers Association, the Retail Council of New York, and the Retail Industry Leaders Association (RILA).

While there were modifications made to the Durbin Amendment in the final agreement, Congressional supporters praised the final result. "I'm pleased that we were able to reach an agreement which makes modifications which strengthen consumer protections and bring competition to a market where there is none," Durbin said in a prepared statement, adding "this was a good-faith effort with House conferees to face legitimate issues and resolve them fairly without surrendering our goals of bringing fairness to interchange fees and common sense regulation to the credit card industry." ABA CEO Oren Teicher noted that "it is heartening to see that Congressional leaders are taking these significant steps to enact common-sense reforms to a problem that has continued to grow in scope."

Under the Durbin Amendment, the Federal Reserve would have the authority to develop regulations that would ensure that swipe fees imposed on debit card transactions are proportional to the cost incurred in processing the transaction. The final agreement also notes that the Federal Reserve will also take the fraud prevention costs of banks into consideration.

In 2009, businesses paid Visa and MasterCard $19.71 billion on debit card transactions, according to The Nilson Report. Many of these businesses have long contended that the interchange fees charged by the banks -- averaging approximately 1 percent to 2 percent of the transaction amount -- much higher than similar fees for processing paper checks -- are unfair. Interchange fees are regulated in many countries, and Visa Europe has announced that it is voluntarily dropping debit card swipe fees to 0.2 percent in Europe, at the same time it has increased rates on similar transactions in the U.S. by some 30 percent.

Under the agreement, merchants would be able to offer discounts to consumers who pay with cash, check or debit cards instead of credit cards, a key provision of the Durbin Amendment. However, the compromise stipulates that the availability of the discount must be disclosed "clearly and conspicuously," and a provision in the original amendment that allowed for discounts for debit cards that carried lower swipe fees was removed. A provision allowing merchants to set a minimum dollar amount for payment by credit card was retained; however, the compromise stipulates that a minimum can not exceed $10. The Durbin Amendment had already exempted debit cards issued by credit unions and other small financial institutions with less than $10 billion in deposits. The compromise will also exempt debit cards that are used to issue such government benefits as unemployment compensation as well as prepaid debit cards, often used by those who do not have bank accounts. 

National Retail Federation Senior Vice President and General Counsel Mallory Duncan noted in a memo to member companies, "If properly implemented, [the agreement] could provide merchants with significant card acceptance cost relief. Most important, for the first time ever, the U.S. Congress will have opened the door to legislative solutions for runaway interchange." John Emling, senior vice president, government affairs of RILA, commented that "at first blush, we can't help but notice that they've done what's in the best interest of consumers and merchants small and large," as reported by the New York Times.