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WASHINGTON -- April 21 is the day the Federal Reserve is slated to release rules setting debit card swipe fees. But some lawmakers are not taking a wait-and-see-approach before trying to fight back.
"I knew this was a controversial issue, but I did not anticipate the political reaction this year," said Sen. Dick Durbin (D-IL) in a conference call with consumer advocates arranged by American Family Voices. Durbin was the lead sponsor behind the Durbin Amendment of the Dodd-Frank which calls for the Federal Reserve to set reasonable debit card transaction fees. The amendment was approved in July. "You would think there is a $1 billion a month at stake, and you would be right. In fact, it is $1.3 billion," he said about the amount large banks and credit companies make on debit card swipe fees.
However, while the banks and credit companies, like Visa and MasterCard, make money off the fees they set, retailers and consumers have no voice in what those fees should be, Durbin explained. In December, the Federal Reserve proposed capping those fees -- also known as interchange fees -- at 12 cents per transaction, as CSNews Online reported. But as the industry makes its way down the home stretch of the 60-day comment period in the proposal, two legislators have introduced bills looking to delay any movement on swipe fee reform. Sen. John Tester (D-MT) is sponsoring a bill that would delay reform for two years and, in the House, Rep. Shirley Moore Capito (R-WV) is sponsoring a bill that would delay reform for year while a comprehensive study on the effects of the Durbin amendment and the Federal Reserve's proposal is conducted.
"They are trying to stop or delay rules that haven't even been written yet. They need to study this more? That is just a smokescreen to me," Durbin said, adding that swipe fee reform has been the subject of nine congressional hearings and three Government Accountability Office (GAO) studies.
Reforming debit card swipe fees also has consumer support and, from a political point of view, representatives should be listening to their constituents, Durbin explained. "We don't need studies; we need action," he added.
His position on the issue is supported by many consumer advocates and retailers. "We supported this when it was enacted and we continue to support it," explained Lisa Donner, executive director of Americans for Financial Reform. "Working families bear the cost of these fees."
U.S. PIRG, the federation of state Public Interest Research Groups (PIRGs), has also stands behind reform, supporting the movement for more than five years, said Ed Mierzwinski, program director of U.S. PIRG. "The interchange model is broken and it has been broken for a long time," he said. "It needs to be fixed."
Mierzwinski added that debit card swipe fees have all the characteristics of a monopoly. For example, the fees are not subject to negotiations and the system is not transparent, he said. "Even the U.S. government has said it cannot negotiate its fees."
Art Potash, chief executive officer of Potash Bros. Market in Chicago, added that the increasingly rising fees have significantly impacted his three-store family business."It has become a burden on our business. This did not happen overnight," he said, explaining that as debit card usage has increased so have the fees. Now, debit card transactions are the company's third highest business expense, behind labor and insurance costs.
"A cost this size cannot be absorbed. It must be passed on to the consumers," Potash added. "And this is not unique to Potash Bros." He further explained that it would make sense if debit card transaction fees were more in line with check fees. "Seventy percent of our business is down with debit or credit cards," he said. "That seems a high cost to pay to doing business."
Durbin said Thursday that he is not aware of a timetable to bring the two bills seeking to delay the reform to a vote, but a new report today by the National Association of Convenience Stores said that Tester has indicated he will move toward a vote when the Senate reconvenes next week.