Swipe Fee Battle Renewed In Washington

The major sideshow in Washington this week has not been whether Congress can agree on budget cuts to avoid a government shutdown, but whether new rules reducing debit card "swipe fees" will go into effect as scheduled.

The battle is between retailers and big banks. Whenever consumers use a debit card to make a purchase, the company processing the electronic purchase charges the merchant a fee.

Late last year the Federal Reserve handed retailers a victory when it proposed a new rule that would establish debit card interchange fee standards and prohibit network exclusivity arrangements and routing restrictions.

As a result, those "swipe" fees would drop sharply, according to industry analysts. The new Fed proposal would cap them at 12 cents per transaction, instead of the current 44 cents, and merchants say they would pass the savings on to consumers. Banks respond that isn't very likely.

Delay

But the matter is far from settled. A bi-partisan group of lawmakers, led by Sen. John Tester (D-MT), has backed an amendment to a small business bill in the Senate that would delay the scheduled implementation of the new rule for two years while it is "studied." Similar legislation has been introduced in the House.

While banks have moved quietly behind the scenes in this battle, retailers have been vocal in trying to call attention to what they believe is an end run by Wall Street.

"Trying to delay and kill a rule before it is even written shows that Senator Tester is just pandering to the big banks," said Dennis Lane, 7-Eleven franchise owner and National spokesman for Reform Swipe Fees NOW! "But doing so, and supporting the delay of these critical reforms will cost America's small businesses $33 million per day and $1 billion per month - and that's not small change."

But the banks counter that consumers will end up paying, one way or the other. The Fed's proposed rule clamping down on "swipe fees" will cost banks an estimated $12 billion a year. If you think the banking industry is going to meekly absorb a $12 billion hit to its bottom line, you don't know banks.

Candor

"If you are nicking into our profits, we will find a way to recover that," Dan DeLawder, the chairman and CEO of Park National Bank in Newark, Ohio, who helps lead an American Bankers Association (ABA) task force on the fees, told USA Today, in a moment of extreme candor.

Officially, the ABA says implementation of the rule would cause "very real and immediate harm" to community banks, consumers and the broader economy. 

"More time devoted to studying the impact of this provision is definitely warranted, said ABA President Frank Keating.

In Washington, "studying" something is usually a euphemism for killing it. Whether that happens to "swipe fee" rules depends on the outcome of this major league lobbying match.

A number of consumer groups say it may not really matter who wins; $12 billion doesn't just disappear from the economy, and chances are consumers will end up paying it one way or the other.