The chief sponsor of the Senate’s interchange amendment creating price controls agreed yesterday to exempt all government programs from his provision, eliminating an argument being used by credit unions and banks lobbying against the measure.
Sen. Richard Durbin, the Illinois Democrat working to develop a regulatory scheme for the $50 billion-a-year market for credit and debit card interchange, said yesterday he will propose a new exemption, or carve-out, from the Senate-passed provision for some $8 billion a year in government benefits programs delivered with debit cards.
Durbin made the announcement during a hearing yesterday on how the federal government could save taxpayer funds by enabling the various federal agencies to negotiate directly with Visa and MasterCard and Visa on lower interchange fees. The two networks currently bar bilateral negotiations on fees. A study delivered by the Treasury Department during yesterday’s hearing before the Senate Appropriations Subcommittee on Financial Services, which is chaired by Durbin, concluded the federal government could save as much as $400 million over five years by negotiating with the card networks on lower fees.
Durbin said he agreed to exempt government benefits programs from his interchange amendment, which would direct the Federal Reserve to study the fairness of interchange fees charged by big banks, because of the detrimental impact it could have on the government programs, many of which are offered by card issuers at a thin profit. As many as 47 states deliver benefits over debit cards in lieu of checks now, the same way as the federal government.
The latest Durbin bid got a major boost during yesterday’s hearing when it was endorsed by Ed Mierzwsinski, the consumer advocacy director for U.S. PIRG, the consumer group supporting the original interchange amendment.
Several states had weighed in against the Durbin interchange amendment in recent weeks, bolstering arguments by credit unions and community banks of the harm the Durbin amendment would create to cards programs. Nebraska’s treasurer was among those lobbying against the Durbin amendment, saying it could force some card issuers to abandon state benefits programs delivered by debit cards. Durbin told Nebraska Sen. Ben Nelson during yesterday’s hearing he will propose a new carve-out for the interchange amendment exempting government programs.
Durbin said even if his amendment passed as part of the bank reform bill, as expected, he will push on with efforts to regulate the vast interchange market and open it to competition, outside of the Visa and MasterCard networks, which control more than 80% of the market. “There is no competition or negotiations [on interchange rates]. Visa and MasterCard tell the companies to take it or leave it,” said Durbin. He noted the growing move from a paper-based economy to a system where most transactions are now conducted electronically over the two networks and the credit card companies take an average of 2% to 3% for every transaction. “If we don’t take steps to reasonably regulate the market a dollar won’t be a dollar any more, it will be worth whatever Visa and MasterCard say it’s worth,” he said.