Senators Wednesday defeated a measure that would have delayed and perhaps derailed a proposal to lower debit card “swipe” fees retailers now pay banks. The new fee cap, scheduled to take effect July 21, would lower the fee from about 44 cents per transaction to just 12 cents. It was signed into law as part of the comprehensive Wall Street reform legislation Congress passed last year in response to the financial market meltdown in 2007.
The attempt to delay the lowering of the fee failed on a vote of 54-45, six votes short of what it needed to pass.
Senators trying to delay the lowering of the fee said they wanted to prevent the measure from taking effect before a study could be done to determine if it would hurt smaller community banks and credit unions that would be hit harder than large national banks by the lost revenue.
Banks collect $8 billion per year in “interchange fees” charged to retailers that allow customers to pay with debit cards. The fees are used to pay for processing, fraud and security costs.
Wednesday’s debate pitted banks against retail businesses and divided both the Republican and Democratic parties. Nineteen Democrats voted to delay the cap, while 12 Republicans voted against the delay.
Sens. Jon Tester, D-Mont., and Bob Corker, R-Tenn., sponsored the provision, which would have postponed the lower swipe fees for six months to allow federal regulators to determine what effect the lost revenue would have on smaller banks.
“Before the rules get implemented, lets make sure we get it correct,” Tester argued on the Senate floor.
Tester said Montana relied heavily on smaller banks that he said could be put out of business by the new regulations.
But Senate Majority Whip Dick Durbin, D-Ill., who authored the original provision to cap the swipe fees, said delaying the cap would amount to sending “a massive subsidy to the big banks on Wall Street” while hurting the businesses that are forced to pay the higher swipe fees.
“Where is the sympathy for small business on this floor?” Durbin said. “If we really believe the key to economic recovery is the strength of small businesses creating jobs across America, why don’t we stand up for them?
The law as written excludes from the cap all banks with less than $10 million in assets. But federal officials, including Federal Reserve Chairman Ben Bernanke, warned that there is “good reason to be concerned” that the exemption will not effectively protect smaller banks.
The effect of the swipe fee cap on consumers is a matter of debate. Proponents of the cap say consumers pay higher prices at retailers because of the current swipe fees. But critics say the cap not only wouldn’t lower prices but would limit where consumers can use debit cards. The cap also would result in higher fees imposed by banks for checking accounts, loans and other services, they said.
Bernanke said he could not predict how the swipe fee cap would affect consumers who use debit cards to pay for purchases.
