One of the summer’s biggest political fights in Washington, D.C., — which has so far been flying under the radar — is a battle between store owners and bankers over the fees charged during the use of debit cards.
As part of the Dodd-Frank Wall Street reform bill last summer, the “swipe fees” on debit cards that are charged to retailers will drop from 44 cents per transaction to 12 cents.
The move is scheduled to be implemented on July 21, but the banking industry is mounting a last-minute challenge to have the change delayed for up to two years.
The provision was approved through an amendment offered by Democratic U.S. Sen. Richard Durbin, of Illinois. Durbin was joined by 63 colleagues in passing the amendment.
Another Democrat, U.S. Sen. Jon Tester, of Montana, is proposing the delay to give the government time to further study the matter. Tester said his concern is how the change will affect smaller, community banks.
“I’m talking about rural America here,” Tester, a farmer, said at a recent U.S. Senate Banking Committee hearing. “I’m talking about community banks and credit unions, that if they go away, it’s another nail in the coffin.”
Democratic U.S. Sen. Mary Landrieu, of Louisiana, and Republican U.S. Sen. David Vitter, of Louisiana, both sit on the U.S. Senate Small Business and Entrepreneurship Committee and backed the Durbin amendment.
But bankers claim the provision is unfair because it didn’t go through the normal committee process.
“At least we would know that there was some due process,” said Bob Taylor, CEO of the Louisiana Bankers Association. “Stepping back to study this, to make sure it makes sense, is not too much.’
Taylor’s group has 164 members who are closely watching the jousting. Taylor estimates that if the regulation is put in place, it will cost Louisiana banks about $36 million.
Using a factor of 10 on the amount of loans banks could issue, Taylor said loan power in Louisiana would shrink by $360 million. The Durbin amendment excludes banks with under $10 billion in assets.
Taylor and other bankers say the fees cover other banking operations, such as free checking.
The change will result in a 70 percent reduction in charges to retailers. Retailers like to note that swipe fees have tripled in the past decade, while bankers say big-box stores, such as Walmart and Target, will get a $20 billion windfall from the new move.
According to the Federal Reserve, banks receive about $17 billion a year in the interchange fees. Whatever happens, consumers are likely to feel the pinch, through either higher prices on store goods or bank fees on other services.
The fee battle is now in the Senate, but Louisiana House members say they are already feeling pressure from both sides. Most have not yet taken a position.
Democratic U.S. Rep. Cedric Richmond, of New Orleans, has already met with small and large retailers, along with restaurateurs concerned about the matter.
“It’s a serious issue that I wish everybody could compromise on,” Richmond said.
Republican U.S. Rep. Jeff Landry, of New Iberia, recently held a meeting between bankers and retailers in his district. Landry supports a one-year delay.
“My concern is not for the big banks, it’s for the community banks, and I have a grave concern for them,” Landry said. “This is a source of revenue for them.”
U.S. Rep. John Fleming, R-Minden, owns Subway franchises. GHe said that the federal government shouldn’t be involved in the process. Fleming says his stores take debit cards from all banks.
“It’s one of those things where bankers would say that retailers are putting more money in their pocket, but I counter that with saying, ‘Well look, if I’m getting a thirty-cent cut, well, so is my competitor,” Fleming said. “That’s going to eventually flow down to the consumer.”
No matter which side he chooses, Fleming said the pressure is building.
“I’ve seen more heat from this, than any other bill except ‘Obamacare,’” Fleming said.
Gerry Shields is chief of The Advocate’s Washington bureau. His email address is GerardShields@aol.com.