Lawmakers Preparing Bills to Delay Debit ‘Swipe’ Fee Caps
U.S. Senate and House lawmakers will propose legislation to delay proposed debit-card “swipe” fee caps that have been challenged by financial companies and questioned by bank regulators.
Senators worked to complete their bill late yesterday and will introduce the legislation today as House Republicans got a first look at language that would put a hold on Federal Reserve rules aimed at making fees paid by retailers “reasonable and proportional” to processing costs, as required by the Dodd- Frank Act.
Senator Jon Tester, a Montana Democrat, will file a bill that would place a two-year delay to the rules as the effects of the Fed proposal are studied. Tester, who will be taking on the second-ranking Democrat in the Senate, Richard Durbin of Illinois, as he pushes the measure, said he thinks he can get the support to move the bill forward.
“We’re going to work hard to get more sponsors on this bill when we get it dropped in today and I think there will be solid support,” Tester said today in an interview on Bloomberg Television.
House Republicans are planning a bill that would impose a shorter hold, Representative Randy Neugebauer said yesterday.
“In the House bill you’re going to see a one-year delay and a study of what should be the composition of an interchange fee,” Neugebauer, a Texas Republican who leads a Financial Services subcommittee, said in an interview.
The Fed’s December proposal to cap debit-card fees at 12 cents per transaction set off a battle that has pitted lobbyists for retailers Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT) against financial-industry groups that say the limits could cost card issuers such as Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) $12 billion in annual revenue.
Representative Shelley Moore Capito, a West Virginia Republican who is in line to introduce the House bill, said lawmakers will seek input as they complete the measure.
“We’ve been looking at how we can answer what I think are some of the very unanswered questions,” Capito, who leads the Financial Services subcommittee that oversees consumer credit, said in an interview yesterday. “We’re closing in on deciding what we’re going to do.”
The House bill would require a joint study conducted by the Fed’s board, the chairman of the Federal Deposit Insurance Corp., the Comptroller of the Currency and the chairman of the National Credit Union Administration, according to a draft copy of the legislation obtained by Bloomberg News.
The study would focus on two primary components: the costs associated with debit transactions and the effect of the Fed’s proposal on consumers, merchants and card issuers, as well as an examination of network exclusivity and routing provisions.
The regulators would be required, within eight months, to submit a joint report to Congress that would include any recommendations for revisions. The central bank would then be required to revise the rules if at least two Fed board members and the FDIC, OCC and NCUA chairmen agreed that consumers would be adversely affected, the exemption for small institutions would be ineffective or that the rules didn’t account for the full costs associated with debit-card transactions, according to the draft bill.
Should the Fed be required to revise the rules, it would be required to finish the changes within four months.
The Fed’s proposed caps would replace a formula that averages about 1 percent of the purchase price. Shares of Visa Inc. (V) and MasterCard Inc. (MA), which set the so-called interchange fees and pass the money to card-issuing banks, fell more than 10 percent after the central bank released its proposal Dec. 16 on investor concern the caps would harm their business model.
Dodd-Frank requires the Fed to complete work on the caps by April 21 and have them implemented by July 21.
Senate talks have been ongoing behind closed doors for the past few weeks, with Tester and Senator Bob Corker, a Tennessee Republican, leading efforts to craft a bipartisan bill.
“We need to understand that we’re not repealing this rule,” Tester said today. “We’re going to delay it, we’re going to study it and we’re going to take a look at it to make sure it is what it is advertised as.”
House lawmakers have been more outspoken on the issue, with Republicans and Democrats using a Financial Services Committee hearing on the issue last month to question Fed Governor Sarah Bloom Raskin on the effects of the proposal on smaller lenders.
The House will wait for the Democrat-led Senate to take the first step, Representative Spencer Bachus said last week. Bachus, the Alabama Republican who leads the House Financial Services Committee, said his members wanted “assurances” that the Senate was ready to act before they took on the issue.
Legislation to delay the fee caps would end the first phase of a behind-the-scenes lobbying battle that started after the provision was signed into law as part of Dodd-Frank in July. Retail and merchant groups have pushed lawmakers to defend the measure, which was backed by 64 of the Senate’s 100 members.
“We made history last July when we passed this legislation and I think we took the financial-services industry by surprise,” Dennis Lane, a 7-Eleven Inc. franchise owner in Quincy, Massachusetts, said during a visit to Washington last week. The banking industry has made pushing back the rules a top priority since then, Lane said.
Retailers have fought back, bringing about 200 retail and convenience store owners to Capitol Hill last week to lobby against a delay. Before visiting lawmakers’ offices, the business owners stood out in front of the Capitol Building in the pouring rain, rallying to defend the Fed proposal.
Tester’s legislation, if it is introduced today, will coincide with the arrival this week of more than 900 bankers in Washington for the American Bankers Association Government Relations Summit. The bankers will make their way to Capitol Hill to visit congressional offices, according to John Hall, the Washington-based group’s spokesman.
Durbin, the Illinois Democrat who crafted the swipe-fee provision, took to the Senate floor last week to battle the efforts to delay the proposal. He accused small banks and credit unions -- two groups that were given an exemption from the rules -- of providing political and lobbying cover for the large banks and payment networks.
“It wasn’t that long ago we were shoveling billions of taxpayer dollars to these banks, so they can’t lobby,” Durbin said March 10. “The credit card companies can’t lobby because they have no popularity with the American consumer, so what do they do? They have some beards.”
Fed Chairman Ben S. Bernanke and FDIC Chairman Sheila Bair questioned the effectiveness of the exemption for lenders with less than $10 billion in assets, bolstering the argument of the community bank and credit union groups that have urged a delay. The efforts have gained traction. As of the end of last week, 10 senators who voted for the proposal had signed onto comment letters with the Fed voicing concerns over the effectiveness of the proposal.
The stakes are high, said Representative Peter Welch, a Vermont Democrat who has pushed for the rules.
“I haven’t been in Washington that long, at least not as long as Senator Durbin, but I do know, in Washington, to delay something means to kill it,” Welch said.
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