After years of trying, Sen. Richard Durbin, D-Ill., finally succeeded Thursday in passing a measure that would restrict interchange fees.
The amendment to the regulatory reform bill, adopted 64 to 33, was changed in the final moments in an effort to make it more palatable to community bankers and credit unions, who had lobbied against the measure.
The amendment would give the Federal Reserve Board authority to control the fee system for debit cards.
The vote is a surprise because many observers had assumed it would fail amidst a last minute blitz attacking it by community bankers and credit unions. The amendment even proceeded under strict Senate rules that required it to win 60 votes to pass.
Its adoption is a significant victory for Durbin, who has fought for years to restrict interchange fees.
The issue is dicey for lawmakers as it crosses business constituencies, with support from retailers and opposition from bankers.
In an uncharacteristic move, most senators gave up their right to be heard on the amendment before its vote, leaving only the Illinois Democrat to tout it on the floor.
"I will tell you that I'm very concerned and disappointed by the so-called Independent Community Banks Association which continues to oppose this amendment despite my best efforts to exempt virtually all of their members from being covered," said Durbin on the floor, referring to the Independent Community Bankers of America.
He repeated accusations he made earlier in the day at a press conference that said ICBA had a conflict of interest because it owned a credit card issuer.
"I understand they have a conflict of interest because they are in the top 25 issuers of credit and debit cards in the United States," Durbin said. "They make a lot of money under the current situation. They may not want to change it. But it's not fair to small banks in Illinois and across the nation for them to speak to this issue when they have this conflict of interest."
The group has denied the bank played any role in their position, and said its members could be hurt if the amendment is enacted in final legislation.
Durbin also vented his frustration at the 8,200 credit unions in America saying "99.999% of credit unions are exempt from this law."
Durbin amended his language earlier in the week to exempt all financial institutions with less than $10 billion of assets from Fed restrictions. Previously, it had exempted banks with less than $1 billion of assets.
But his revisions did not appear to help, as both community bankers and credit unions vigorously fought the amendment. They said retailers could discourage use of cards from smaller institutions — for example, by offering customer discounts — since they would not be subject to the fee restrictions.
At issue are the fees issuers charge merchants each time a customer swipes a credit or debit card when buying goods. Retailers have argued for years that the fee system — controlled by Visa, MasterCard and other networks — is anti-competitive and impedes their ability to profit from sales.
Durbin's amendment would focus on debit cards. It would require the Fed to establish regulations to ensure debit interchange fees are "reasonable and proportional" to the costs incurred by issuers to process a payment.
In addition, merchants could, without penalty, set minimum transaction levels for allowing electronic payments. Under current law, Visa and MasterCard can fine retailers if they impose such minimums.
The amendment would also let retailers give customers incentives to use one credit card network — which may charge a lower interchange fee — over another.
Shortly before the vote, Durbin altered the amendment to add additional qualifications to that section to say that a retailer could not offer discounts among issuers of cards on the same network.
For example, a retailer could not offer discounts for MasterCards issued by a big bank like Bank of America over a MasterCards issued by a community bank.
The change was meant to address bankers' and credit unions' concerns that they would be disadvantaged under the amendment. It was unclear, however, if either group would find the alterations acceptable.