Debit card fight coming to U.S. Senate floor

By Dave Clarke

WASHINGTON (Reuters) – The battle over whether to delay a new cap on the amount banks can charge retailers when a debit card is used will come to a vote in the U.S. Senate as soon as this week.

Opponents of the crackdown introduced a proposal on Tuesday that would delay the cap from going into place for as long as a year while the issue is studied by regulators.

Banks of all sizes and retailers have been engaged in a fierce lobbying fight over a provision in the 2010 Dodd-Frank financial oversight law that requires the Federal Reserve to set a cap on the fees banks can charge merchants when a customer uses a debit card.

Due to the intense lobbying surrounding the issue, an accurate gauge on who will prevail probably will not become apparent until senators are on the floor voting.

The stakes are high for both banks and retailers.

The Fed in December proposed capping the fees at about 12 cents per transaction — a 75 percent cut. The banking industry estimates this would cost them $12 billion annually.

The law specifically exempts small banks, those with less than $10 billion in assets, from the fee cap but these smaller institutions argue it will not work and have eagerly joined larger banks in the lobbying fight.

Following the release of the Fed rule in December the banking industry turned to Congress for a delay or rollback of the rule.

On Tuesday, a group of Democrats and Republicans introduced a proposal that would require the Fed, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp and the National Credit Union Administration to study the Fed rule for six months.

The regulators would be asked to determine whether the rule takes into account all of the costs to a bank when a debit card is used, whether it would adversely impact consumers and whether the exemption for small banks would work.

If the Fed and one other regulator determines any of these to be true, then the December proposal would be scrapped and the Fed would have six months to draft a new proposal.

The heads of all four of these agencies have already said the exemption for small banks probably will not work in practice.

The proposal would also require the Fed to study every two years how the fee cap is impacting small banks.

The proposal is being spearheaded by senators Jon Tester, a Democrat, and Bob Corker, a Republican, who argue their goal is to protect small banks.

Critics have said delaying the debit fee crackdown is a gift to large banks, like Bank of America and JP Morgan Chase, as well as to card network companies like Visa and MasterCard.

The proposal is being offered as an amendment to an unrelated bill reauthorizing economic development programs.

A vote is expected this week but the schedule could slip. (Reporting by Dave Clarke; Editing by Tim Dobbyn)