Senate upholds Durbin swipe fee limits on debit cards

By , CardRatings contributor
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A bipartisan Senate coalition failed to raise enough votes to stall the implementation of new rules that would limit the fees banks charge retailers to process debit card transactions. Only 54 of the required 60 Senators voted for a further amendment to 2010's Dodd-Frank financial overhaul act that would delay the fee cap for up to a year.

Banking industry lobbyists warned that such a cap would harm small banks' ability to remain competitive with larger issuers, despite a two-tier rate structure based on banks' revenues.

All debit cards affected

Democratic Senate Majority Leader Dick Durbin spearheaded the campaign to cap the fees merchants pay banks to process debit cards. Most merchant account processors already charge retailers lower fees for handing PIN-based transactions, since those sales carry far less risk than signature-only transactions.

The Durbin Amendment to the Dodd-Frank Act would place a maximum cap of 12 cents on debit card transactions, regardless of whether buyers entered a PIN. In statements to reporters before the vote, Durbin expressed concern that the voices of consumers would be "drowned out by the lobbying might of the financial industry."

Cap cuts costs to retailers

Retailers spend more each year on debit and credit card processing fees than on anything else besides labor, according to Food Marketing Institute President and CEO Leslie G. Sarasin. Banks currently split fees of up to 5 percent of the total value of each transaction, along with a per-swipe processing fee that can range between 10 and 50 cents.

Durbin and other proponents of the new rules have expressed expectations that savings will enable many retailers to lower prices on staples like groceries and gasoline.

Banks may cut back services

An April 2011 survey commissioned by payment processing network PULSE reported that small banks anticipate as much as a 73 percent drop in interchange fee revenues after full implementation of the new plan. Over the past few months, banking lobbyists warned lawmakers that debit card revenues help cover the cost of services like free checking and ATM services.

Writing for the Wall Street Journal, Victoria McGrane and Maya Jackson Randall noted that lobbyists had already shifted their attention to convincing Federal Reserve regulators into adjusting the maximum fee due to take effect in July.

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