Senators Try to Roll Bank Interchange Fee Limits
Maybe the most surprising amendment to pass in the Dodd-Frank financial regulatory reform bill was Dick Durbin’s interchange fee amendment. The banks had collected this exorbitant fee for a long time, even on debit cards, where the transaction costs were almost nil. But Durbin somehow won the amendment on the floor of the Senate. There was a bit of a cross-industry dynamic going on, as retailers and merchants pushed hard for reforming the fees.
But now, a group of Senators want to act like that vote never happened, and with the aid of banks big and small, want to re-litigate the issue.
A bipartisan group of senators introduced a bill on Tuesday that would delay a new federal regulation to lower the swipe fees that banks could charge merchants for processing debit card transactions.
Although there is growing uneasiness with the regulation, it is not at all clear the senators will succeed in upending the law, which easily passed the Senate last year and was a cause championed by a leading Democrat.
The latest bill, introduced Tuesday by nine senators led by Senator Jon Tester, a Democrat from Montana, calls for a two-year delay and a one-year study during that period of the effect of the proposed limits on debit fees.
Delays and studies are the mother’s milk of bought-off politicians. They put these things in with the hope that they can either constantly hold off the changes or just put a stop to them altogether. No study is done in any of these studies. It’s just a stalling tactic.
The Federal Reserve’s preliminary rule on interchange fees drops them to 12 cents a transaction, down from 44 cents. This is a huge cash cow for the banks, a $20 billion industry, and they want to keep it.
You have to love Tester’s press release, where he claims that his bill would “protect consumers.” The claim is that debit card transactions would then become limited or free checking would stop. This is just a disingenuous, speculative claim for a bill meant to protect bank profits, pure and simple. A look at the co-sponsors reveals that Chris Coons is a Senator from Delaware, unlike his predecessor Ted Kaufman, who was a voice of the people against the banks.
Community banks have come down on the side of their big-bank brothers on this one, despite the fact that interchange fee revenue goes overwhelmingly to the big banks, and banks under $10 billion in assets would be exempt from the rule. There’s only one reason why community banks engaged:
But a key debit card would not be exempted from the new rules: The one issued by the small-bank lobby itself, the Independent Community Bankers of America (ICBA). That gave the small-bank lobby shop an incentive to oppose reform to preserve the market share of its debit card. With new rules in place, the ICBA would be deprived of swipe-fee revenue. That meant the ICBA’s incentive ran counter to the goals of the members it represents in Washington, who would benefit from rules that would clamp down on the big banks but leave small banks alone. That conflict is a particularly vivid display of a Washington phenomenon, where trade associations are established with the goal of advancing their individual members’ interests, but ultimately strive to preserve and extend their own influence.
Critics allege that the ICBA’s own lucrative role in the debit-card business skews the position the group offers on behalf of small banks.
“We argued that ICBA is conflicted on this issue because ICBA itself is an issuer of debit cards,” an aide to Senate Majority Whip Dick Durbin (D-Ill.), who led the fight in the Senate, told HuffPost.
I’m wondering where the retailers have gone in this fight. They sought this rule, they ended up delivering 64 votes for it last year. They need to find their lobbyists and work on this. I’d rather we get all these rent-seeking market distortions out of the marketplace.