WASHINGTON -- In a huge win for retailers, an attempt to delay a cap on interchange fees that banks charge merchants when shoppers pay with their debit cards failed Wednesday (click here for previous CSP Daily News coverage).
The legislation before the Senate sought to delay regulations [image-nocss] for up to a year that would cap debit-card swipe fees at 12 cents per transaction. Banks currently charge retailers a 1% to 2% fee for each transaction, which gets banks an average of 44 cents per transaction and an estimated $16 billion annually.
The bill, proposed by Senators Jon Tester (D-Mont.) and Bob Corker (R-Tenn.), won a majority of votes, 54 to 45, but fell six votes short of the 60 needed to avoid a filibuster.
The new regulations are set to take effect on July 21 and stem from last year's financial reform bill, which instructed the Federal Reserve to place such a cap.
Reports suggest that banks will appeal to the Federal Reserve to amend the fee cap, The Christian Science Monitor said.
The failure of the Tester amendment "almost certainly dooms legislative efforts to delay implementation of the pending regulation," said PYMNTS.com, which generally supports the position of the banks and payments industry on this issue, rather than that of retailers. It posed the question "what now?"; its answer signals what might be coming next from the opponents of swipe-fee reform: court challenges.
In its analysis of Tester's defeat, PYMNTS.com said that the Federal Reserve's proposed rules, published ahead of the final rules, "left a number of important questions unanswered: what is the standard by which debit interchange will be set (the original draft offered two possible standards); and to what degree can the applicable standard be modified to accommodate efforts to reduce fraud (the earlier standard did not offer a proposal on the so-called fraud adjustment)."
It added, "The regulations also attracted legions of comments, criticizing virtually every aspect of the proposed rule from the definition of debit card as well as to the board's seeming failure to abide by its own rules in issuing the rules. The board's final rule must respond to those comments and may even change in some respects.
"For purposes of this rule-making procedure, the board is a federal agency, and as a federal agency, it is supposed to follow the Administrative Procedures Act when issuing rules. Parties affected by final rules issued by a federal agency can bring a challenge under the Administrative Procedure Act arguing, among other things, that the final rule violates the statutory mandate and is arbitrary and capricious.
"The final rules could be open to challenge, particularly if they retain certain aspects of the proposed rules .... The board's proposal to cap interchange rates does not seem to meet any definition of the word 'standard'."
Merchants say that they will pass the savings from a swipe-fee cap on to customers. To some, that seems unlikely, said the Monitor. "I find it hard to believe that retailers will take that 99 cent item and change the price to 98 cents," Bill Hardekopf, CEO of LowCards.com, told the publication.
He added that banks are also unlikely to accept the loss of revenue without making up for it in other areas. "The retailers are the big winners. The banks are the big losers. And who knows about consumers. I think consumers are going to lose too," he said.
Banks have warned lawmakers that they may be forced to eliminate free checking, cut rewards programs or increase customer fees if a swipe-fee cap takes effect.
(Andclick here for previous CSP Daily News coverage of the interchange fee-reform effort.)
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