Debit card fees: Senate discusses limiting swipe costs to stores

WASHINGTON (AP) — Lawmakers on both sides of a battle over debit card fees used populist-style appeals on Wednesday as the Senate neared a vote on whether to block a Federal Reserve plan to lower the fees that stores must pay banks each time a shopper swipes a debit card.

Financial institutions and their supporters on Capitol Hill have been fighting a Fed proposal to cap, at 12 cents, the fee stores must pay the banks each of the 38 billion times that shoppers use debit cards every year.

Those fees currently average about 44 cents per swipe, transactions that earn banks and credit card companies $16 billion a year, the Fed says.

The battle has pitted banks against merchants, two industries that lawmakers hate to cross because of their influence back home and their campaign contributions.

With a showdown voted slated for later Wednesday, the Senate's chief proponent of lowering the swipe fees, Sen. Richard Durbin, D-Ill., said that taxpayers had helped banks "in their darkest hour," a reference to the $700 billion financial industry bailout of 2008. He said banks showed their gratitude by showering huge bonuses on their executives.

"Honestly, are we going to stand here and say we can't protect small businesses across America struggling to survive?" said Durbin, the Senate's No. 2 Democratic leader.

Responding later, a leader of the drive to prevent the Fed from capping the fees also sought to appeal to everyday Americans, saying he was fighting for small community banks and credit unions, not the nation's biggest financial institutions.

"These small guys who had nothing to do with the financial crisis do not have that same flexibility the Wall Street banks have" to make up for lost debit card fees by finding revenue elsewhere, said Sen. Jon Tester, D-Mont. "and these are the banks in Montana. These are the folks that I want to make sure have a fair shake."

Last year's financial overhaul law ordered the Fed to issue a rule on debit card fees that will take effect on July 21. The Senate vote will be on an effort to delay the regulations for a year and order the Fed and three other agencies to study whether the proposal is fair — and rewrite it if at least two agencies decide it is not.

Each side was claiming to have consumers' interests at heart. Merchants said today's fees, typically 1 percent to 2 percent of the purchase, push their prices higher and make it tougher to hire new workers. Banks say the Fed proposal discounts overhead costs like preventing fraud and argue that slicing the fee would force them to find other sources of revenue such as raising their charges for checking accounts.

The fight over so-called interchange fees for debit cards crosses party lines. While Durbin is the chief supporter of the Fed's proposal, the main foes are Tester and Bob Corker, R-Tenn.

The provision requiring the Fed to set fair debit card fees was included in last year's financial overhaul law by a 64-33 Senate vote and was written by Durbin. There was no separate House vote on the issue. President Barack Obama signed the overall law after Congress passed it over solid Republican opposition.

Durbin, using Senate procedures, is forcing Tester and Corker to gather support from 60 of the 100 senators to win. Though aides and lobbyists on both sides say Tester could be close to prevailing, they concede it will be tough to defeat the veteran Durbin, who wields considerable influence as a party leader.

Even so, Durbin faced some challenges. Six senators — including five Democrats — who voted for his amendment last year are no longer in the Senate. And at least two senators who supported him a year ago — Kay Hagan, D-N.C., and Mike Crapo, R-Idaho — are backing Tester's effort to delay the Fed rules.

On Tuesday, Durbin recalled the $700 billion bailout passed in late 2008 as the financial industry teetered on the brink of catastrophe — followed by the widely unpopular bonuses that many financial firms awarded executives. He said the largest banks were "fighting viciously" to block the Fed rule because they have the most to lose.

"Are we going to be shaken down a second time?" he asked. "That's what this debate is all about."

Tester, a first-term senator facing re-election next year in a GOP-leaning state, said he was not championing big banks.

"No one needs to shed a tear for them," he said on the Senate floor.

Instead, he said he was on the side of small banks and credit unions that dot his rural state, which he said could vanish if their revenues collapse.

"Fewer banking options in rural America is a death knell for rural America," Tester said. "But that is where we are headed."

"To call this a Wall Street bailout is beyond demagoguery," Corker told reporters.