Senate Refuses to Delay Debit-Card Swipe Fee Cap

The U.S. Senate dealt big banks a setback today, refusing to pass a plan to postpone new regulations that sharply reduce the fee that banks and card processors can impose each time a consumer swipes a debit card to make a purchase.

Shocked by the 54-45 vote, financial industry lobbyists said they would turn their attention to the Federal Reserve, which has the power to revamp the rule. (A supermajority of 60 votes was needed to pass the measure).

"It is within the Fed's power to mitigate the disastrous consequences that are sure to come from this policy initiative," said American Bankers Association President Frank Keating, who described himself as "deeply distressed" with the vote.

The fee caps "mark a dark day for every bank that issues debit cards and for consumers that have come to rely on them," said Keating. But not everyone agrees the vote is bad news for consumers.

"Public Citizen applauds the Senate for standing firm against bankers’ attempt to preserve their lucrative and unjustified debit card swipe fees, which have functioned as little more than a wealth transfer from the poor to the rich," said Public Citizen's financial policy advocate, Bartlett Naylor.

$16 billion

"Four banks alone account for $8 billion of the $16 billion in annual swipe fee profits. That oligopoly shows the need for the cap authored by Sen. Richard Durbin (D-Ill.) and approved last year as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act," Naylor noted.

"Will retailers pass on the savings, an average of 32 cents per transaction?" Naylor asked. "Retail markets are competitive and transparent enough that American consumers ought to recoup the savings in reduced prices."

Sen. John Tester (D-Montana), co-author of the bill that would have delayed the new regulations, said the Senate "missed an opportunity to stand up for consumers, small businesses and community banks in rural America."

"I fought for this measure because it puts the brakes on consolidation in the financial industry which has hurt Montana.  And it helps keep small businesses and community banks from getting wiped out by powerful Big Box retailers," said Tester who was quickly showered with nearly $60,000 in contributions from credit card companies and their allies when he introduced the measure.

What about Tester's claim that the fees will hurt small banks?

"Certainly not," said Public Citizen's Naylor. "Only banks with more than $10 billion in assets are subject to the cap."

"If debit swipe fees are capped, the bankers argue, they’ll be forced to make up the difference by increasing other fees. But bank profits aren’t a universal constant. When banks are stopped from profiting unfairly and can’t make up the difference by providing more value to customers, then they should simply profit less," Naylor said..