Senators led by Richard Durbin, the Illinois Democrat who pushed to include the fee caps in the Dodd-Frank Act, turned back the proposed delay in a 54-45 vote today that left the amendment six short of the 60 needed for approval.
Visa and MasterCard, the world’s biggest payment networks, dropped the most since Dec. 16 after the vote, before rebounding by the end of trading. Visa rose to $76.75 by 4 p.m. in New York Stock Exchange composite trading, after falling as low as $74.37. MasterCard, which dropped as low as $258.34, closed the day at $269.96. Shares of U.S. banks slipped.
The caps proposed by the Fed in December and scheduled to take effect July 21 would cut revenue by about $12 billion a year at lenders including Citigroup Inc. (C), Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM) In the most extensive lobbying fight to arise from Dodd-Frank, the banks pushed to roll back or delay the Fed rule, battling efforts by Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT), who would pay less under the caps.
“We should let the Federal Reserve issue this rule,” Durbin said before the vote. “If more needs to be done, I’m on board, but the notion that we can’t even trust the Federal Reserve to come up for a rule on this is just plain unfair.”
Visa and MasterCard establish the swipe fees, or interchange, and pass the money to card-issuing banks. The central bank has proposed capping the fees at 12 cents a transaction, replacing a formula that averages 1.14 percent of the purchase price. Barbara Hagenbaugh, spokeswoman for the Fed, declined to comment after the vote.
Durbin and his supporters have said reducing the fees and increasing competition in the debit-card market would cut down on one of the largest monthly expenses for many retailers. The savings, Durbin and retailers say, will be passed to consumers.
“These bipartisan reforms will bring meaningful relief to millions of merchants and consumers,” Sandy Kennedy, president of the Retail Industry Leaders Association, said in a statement after the vote. “With this distraction now behind us, retailers await the Federal Reserve’s final rules so they can begin implementing these reforms and saving consumers money.”
Banks and payment networks have said the fees are necessary to maintain the infrastructure and technology of a system that has brought more revenue to retailers than they have been charged.
“It is stunning that the Senate chose to ignore every major banking regulator who warned that this rule could harm community banks and credit unions -- and possibly even result in bank failures at a time when our country can least afford it,” said Trish Wexler, a spokeswoman for the Electronic Payments Coalition, a group whose members include JPMorgan and Bank of America Corp. (BAC)
The Senate action marks the end of the fight between Durbin and Senator Jon Tester, a Montana Democrat, which began when Tester and Senator Bob Corker, a Tennessee Republican, proposed a two-year delay in March. Tester in May cut his proposed delay to 15 months in search of the 60 votes needed for Senate passage. Durbin, the Senate’s No. 2 Democrat, had vowed to block efforts to remove or delay the rule.
Today’s vote split senior Democrats, with Senate Majority Leader Harry Reid of Nevada siding with Durbin and Banking Committee Chairman Tim Johnson of South Dakota backing the Tester-Corker proposal. Others were caught in between a vote to support Durbin during last year’s debate and a desire to support the delay, Corker told reporters after the vote.
“Some of the folks were worried, I think, politically,” Corker said. “Even though they knew this policy was right, they were worried about voters back home not understanding their vote when they had voted for Durbin the first time.”
With the public comment period for the rule set to end in the next few weeks and the July 21 implementation date coming up, Corker said there was little that can be done to stop the caps from taking effect.
“I think, for a period of time, the water’s sort of under the bridge,” he said.
MasterCard asked the Fed to reconsider the details of the rule before making it final.
“MasterCard calls on the Federal Reserve to carefully consider the thousands of submitted comments raising concerns for the unintended consequences of the proposed debit interchange price control,” Noah J. Hanft, the company’s general counsel, said in a statement.
Visa said it will provide investors more details about the company’s plans after it reviews the final rules.
“The long-term impact of the Dodd-Frank debit provisions on Visa will be manageable,” Chief Executive Officer Joseph W. Saunders said in a statement. “We have spent the past year preparing for all potential outcomes, and we have plans in place to evolve our U.S. debit strategy.”
Tien-tsin Huang, an analyst at JPMorgan, said shares of the payment networks may rally because the “outcome is not a surprise” and he advised clients to buy.
The vote “could ironically be a fine outcome for both stocks in need of certainty sooner rather than later,” Huang said in a research note after the vote.
The effort in Congress to reconsider the rule had been bolstered by regulators. Fed Chairman Ben S. Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair questioned a part of the law that exempts banks and credit unions with less than $10 billion in assets, saying it might harm smaller card issuers. Acting Comptroller of the Currency John Walsh sent a March 4 letter to the Fed calling the proposal “unnecessarily narrow.”
In all, 12 senators who voted to include the swipe-fee provision in Dodd-Frank last year backed the delay today. That wasn’t enough to get the measure to 60 votes.
Senator Roger Wicker, a Mississippi Republican who had backed the original Durbin plan, said he voted for the delay today because “the amendment has changed and the Durbin language has changed.”
“I thought it was a reasonable compromise, on balance, and a very close call,” Wicker said.
The debit caps could still be derailed before July 21. The St. Louis-based U.S. 8th Circuit Court of Appeals is scheduled to hear arguments next week in a case filed by TCF Financial Corp. (TCB) The Wayzata, Minnesota-based bank has appealed a lower court ruling that denied the lender’s request for an order suspending the caps.
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