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WASHINGTON, D.C. -- U.S. Representative Barney Frank, one of the authors of last year’s financial reform legislation, said he is ready to work with the Republican majority to force changes in a Federal Reserve proposal to cap debit-card swipe fees, reports Bloomberg News.
According to the new swipe fee rules included in an amendment to the Dodd-Frank bill, the Fed proposed capping debit interchange fees charged to merchants at a flat 12 cents for each transaction, replacing a graduated fee that came out to about 1 percent of the transaction price. This authority was granted to the Fed by the so-called Durbin amendment, named after Senator Richard Durbin of Illinois. The Fed must finalize its rules on the cap by April 21 and in effect by July 21 to comply with the legislation. Credit-card interchange fees, which average about 2 percent, remain untouched.
Some say the new rule will reduce annual revenue for U.S. banks by more than $12 billion, and Visa and MasterCard shares plummeted more than 10 percent after the Fed’s proposed rules went public, according to Bloomberg.
However, banks have already started raising other fees for banking services to consumers, according to other published reports -- perhaps in an attempt to recoup expected losses on interchange fees. Experts also predict banks will scale back or eliminate debit rewards programs for consumers.
"If they [Republicans] want to do something on it, I’ll work with them," Frank said in an interview this week, referring to the Republicans who now control the banking committee.
A spokesman for Durbin, the second-ranked Democrat in the Senate, said in an email that legislative attempts to change the swipe fee law "are premature and have no chance of ever passing Congress."
"The big banks and card companies hate it when they lose, so they are asking to play the game all over again," wrote Max Gleischman, Durbin’s spokesman. "If some people want to repeal a law that gives billions of dollars per year of relief to small businesses and their customers in order to protect the bottom line of the nation’s biggest banks, that’s a debate we’re happy to have."
Republicans in the House of Representatives appear ready to push ahead with changes to the financial regulatory overhaul passed last year when Democrats were in charge, according to Bloomberg. However, the report noted that no hearings have been scheduled on the issue and no legislative proposals have been introduced in either house yet.
Bloomberg noted that the interchange issue has created unorthodox battle lines in Congress, with some Republicans who side with large merchants voting for the rules, and Democrats, unconvinced by the argument, voting against.
"I don’t think there’s any legislative fix needed or wanted in the Congress on this," said Doug Kantor, a partner with Steptoe & Johnson LLP who represents retail groups including the Merchants Payments Coalition. "It passed overwhelmingly with bipartisan support and if they bring up a legislative fix or change of any kind, it can only be one that gets better for merchants."
One analyst noted that rather than a repeal, the most likely outcome is a delay in implementation to give Congress more time to study the issue.
Debit interchange fees totaled $16.2 billion in 2009, according to a document outlining the Fed’s proposed rules.