A late addition to a Republican financial reform bill threatens to spark a major lobbying battle between banks and retailers, adding legislative jockeying to the GOP's efforts to highlight their election-year agenda.
Lobbyists on both sides are gearing up to contest a provision in a House Financial Services Committee legislative package that would repeal a cap on debit transaction fees put in place by the 2010 Dodd-Frank financial reform law.
Known as the "Durbin Amendment" for its sponsor, Illinois Democratic Sen. Richard Durbin, the existing law might not catch the attention of voters concerned about Wall Street bailouts. But it's of overriding importance to the banking sector and businesses with customers who pay with debit cards, including grocery stores, retailers, convenience stores and gas stations.
That's because it is costing banks billions of dollars while saving retailers — $6 billion in 2014, according to one estimate. The Durbin Amendment placed a cap on the fees card-issuing banks charge on debit card transactions, effectively halving them.
An earlier effort to stop the cap from being implemented, led by Montana Democrat Rep. Jon Tester in 2011, kicked off an epic lobbying battle that resulted in $30 million spent by both sides, according to one report.
Lobbyists are positioning for another round, thanks to the inclusion of the repeal measure in the Choice Act, the Republican legislation authored by Financial Services Committee Chairman Jeb Hensarling of Texas. Their messaging could complicate the politics of the bill.
Hensarling rolled out the Durbin Amendment repeal almost as an afterthought to his sweeping bill, a boldly conservative measure that would reshape the financial regulatory system.
Hensarling announced that his legislation would repeal the "price controls" created by the Durbin Amendment during a June speech announcing the bill in New York City, a provision that wasn't even listed in an outline of the reform circulated earlier in the day.
The Texan's comments pleased bankers but sent retailers scrambling.
"It's hard to get grocers to get their heads out of the register a lot of times, they're really busy running their businesses," said Hannah Walker, senior director of government relations at the Food Marketing Institute, a trade group for grocery stores. "But I don't know why for some reason a lot of them were watching Chairman Hensarling's speech in New York at 8 a.m. on like a Monday, but we got a lot of calls really quickly from our members."
Walker said her group is working to sway lawmakers against repealing the Durbin Amendment and for taking the provision out of the Republican bill before it goes to mark-up. Hensarling has suggested that he hopes to move the bill through the committee in September.
Rep. Randy Neugebauer, R-Texas, the author of the specific legislation that would repeal the Durbin Amendment, expressed optimism that the measure would get support from his colleagues. "I'm feeling pretty good that my colleagues will embrace this," he said, describing the swipe fee cap as crony capitalism that was added extraneously to the 2010 Dodd-Frank law. Conservatives and the industry have contended that the swipe fee has resulted in costs being passed on to bank customers, without the corresponding drop in prices promised by retailers.
Hensarling and Neugebauer won't have many votes to spare, as Democrats likely will vote as a group against Hensarling's legislative package. Yet getting all Republicans on the committee on board won't be easy.
"Some of the members are really honest with us and tell us they just want to stay out of the fight, they want nothing to do it," one bank lobbyist said, explaining that some Republicans have major convenience stores or retailers in their districts that influence their votes.
Yet the swipe-fee provision is one that is key to support from the banking industry. Lobbyists described it as one item on which all banks, including Wall Street megabanks, community banks and credit unions, strongly agreed.
Other parts of the Hensarling bill are less attractive to parts of the industry. The requirement that banks increase their capital levels in exchange for regulatory relief, in particular, is viewed skeptically by big banks. One lobbyist predicted that, if the Durbin Amendment repeal provision is stripped from the bill, "you'll see a lot of the bigger big banks ... kind of walk away from the whole thing."
One factor working in favor of repealing the Durbin Amendment is that having the Federal Reserve regulate swipe fees runs afoul of conservatives' skepticism of price controls.
Apart from political considerations, Republicans would never accept a regulatory agency setting prices in other industries, argued Sam Geduldig, a partner at CGCN Group, a lobbying firm. He has been trying to frame it in those terms to Republicans, describing it as "literally a choice between capitalism or communism."
For now the Durbin Amendment repeal has the enthusiastic support of the banking industry, which is able to provide its own clout.
"We're engaged on all fronts to try and make sure that this provision remains in the bill," said Sam Whitfield, senior vice president of Congressional Affairs for the Consumer Bankers Association.
Whitfield said he was working in particular to make sure that the industry is prepared for the possibility of a vote on an amendment to strip the Durbin repeal provision out of the larger package. "You never want to take for granted that a vote won't happen," he said.
Although the GOP bill is meant to be a statement of Republican priorities before the election and would never be signed into law by President Obama, its advancement would signal lobbyists to prepare for a major battle next year.
The retail industry's lobbying efforts would quickly ramp up to the level of 2011 in that case, said Douglas Kantor, counsel for the Merchants Payment Coalition, a group advocating for retailers on swipe fees. "It's certainly not there yet."
That prospect could prove daunting for members of Congress. "I'm sure it's not a battle that members are necessarily eager to engage in," said James Ballentine, the head of government affairs at the American Bankers Association. Ballentine noted that representatives tend to shy away from industry-versus-industry battles that have interests on both sides.
One wrinkle is that it has been long enough since the 2011 vote on the Tester measure that many of the relevant legislators were not around for that fight. Lobbyists for both the banks and the merchants said that much of their work over the summer has been to reach out to those lawmakers.