WASHINGTON–The banking industry was caught off guard this week as Sen. Dick Durbin, fresh off a victory to add interchange regulation to the financial-reform bill, mounted another legislative effort on interchange that appears to be gaining momentum.
The Illinois Democrat successfully added an amendment to an appropriations bill that would require credit card payments accepted at government agencies to be given the lowest available market interchange rates, which typically only large retailers can negotiate.
The provision was a potent reminder that Durbin and others are going to continue to push the issue following their success in adding a measure to financial-reform legislation signed into law last week that requires the Federal Reserve Board to determine debit card interchange rates next year.
Although the latest proposal targets a narrow slice of credit card transactions, many saw it only as an opening salvo.
“I don’t see why there would be a natural reason to stop there,” said Raj Date, chairman and executive director of the Cambridge Winter Center for Financial Institutions Policy. “If you believed that the debit-interchange component of the broader regulatory reform was a good idea, I am pretty sure that those arguments would logically extend to credit, too. … This issue has always seemed like a brawl between two very big, powerful entrenched interests–the retailers and the banks–and it just so happens that we are at a time when the merchants have been better able to make their case.”
The latest Durbin interchange-rate provision was adopted July 28 by the Senate Appropriations Committee financial services subcommittee that he chairs. The provision to the broader fiscal 2011 appropriations bill, which the Senate Appropriations Committee plans to take up Thursday, he adds.
In a report earlier this year, the Treasury Department said lowering interchange rates on government cards could save the government between $25 million to $28 million a year (see story).
Some analysts said that such an argument is particularly compelling now given that lawmakers, particularly Republicans, are trying to rein in spending and reduce the deficit.
“It seems sensible enough that it’s likely to have some momentum, and I’m not sure that it’s going to be possible to reverse,” says Chris Low, chief economist for First Horizon National Corp.’s FTN Financial.
But other analysts say the provision could fail as the overall legislation gets bogged down in an election year.
“I don’t see individual appropriations bills passing this year,” says Mark Calabria, director of financial regulation studies at the Cato Institute. “It has low odds. Not due to its substance, but more due to the outlook for appropriations.”
Industry lobbyists say that Sen. Susan Collins, R-Maine, voiced concerns about the provision during the subcommittee vote on Tuesday, and they were hoping she would offer an amendment to strike the interchange provision or replace it with a study.
A spokesperson for Collins did not respond to requests for comment by deadline.
Banking industry lobbyists were reluctant to discuss the odds of beating the provision, particularly after their loss on the issue in the financial-reform law. But several say they are ready for Durbin to continue his fight to regulate interchange rates.
“We’re deeply concerned over this continued desire to limit the ability of community banks and others to serve their community by taking away needed revenue from them,” says Ken Clayton, head of the American Bankers Associations card policy council. “It’s going to affect every bank in America from the smallest to the largest.”
Jason Kratovil, a lobbyist for the Independent Community Bankers of America, says the provision’s sudden movement is troubling.
“The interchange provisions of Dodd-Frank represent a major cost shift onto consumers and community banks,” he says. “This language, which would make it even harder for community banks to provide credit cards to their customers, is not something we support.”
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