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June 21, 2010 Banks Enlist Proxies To Fight Durbin Amendment’s Curb On Debit Card FeesRecognizing that “credit card companies” and “Wall Street banks” may not have the most sympathetic political image these days, the payment card industry has enlisted small financial institutions as proxies to undercut support for Senator Dick Durbin’s (D.-IL) amendment giving the Federal Reserve the power to scrutinize fees imposed on merchants accepting debit cards.Durbin’s amendment was incorporated into the Senate version of the pending financial reform package by a surprisingly large, bipartisan 64-33 vote last month – thus the vociferous opposition campaign as House and Senate conferees got to work to reconcile the Senate’s version with a House bill that has no provision addressing interchange fees. The conferees are expected to continue debating the potential curb on fees this week. Durbin’s amendment requires the Federal Reserve to establish rules requiring that debit card “interchange fees” are “reasonable and proportional” to the costs incurred by an issuer or payment network “with respect to” a transaction. The Federal Reserve’s rules are to set such levels taking into consideration the fact that the debit cards are an electronic replacement for checks, which clear at par, and the incremental costs of a card transaction. In contrast, debit card interchange fees currently can amount to 1 percent or more of a card transaction. Merchants would like these fees reduced to reflect no more than actual processing costs, to ensure, for example, that merchants are not forced to pay for the costs associated with airline frequent flyer points awarded when a customer swipes a “rewards” debit card. In response to concerns raised by community banks and credit unions during the drafting of the amendment, Durbin’s amendment expressly carved out from the sections coverage fees paid to card issuers that have assets of $10 billion or less. According to Senator Durbin, the result is that only 85 financial institutions are covered by the debit interchange fee provision, including just the three largest of America’s over seven thousand credit unions. |
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