Senate Majority Whip Dick Durbin, D-Ill. on May 6 introduced three interchange-related amendments to the Senate’s financial-reform bill, prompting swift criticism from the payments industry.
Sen. Tom Harkin, D-Iowa, on May 4 also introduced an amendment to the overhaul bill that would cap ATM fees at 50 cents per transaction. Harkin’s bill would require that a proposed new consumer financial-protection agency restrict ATM fees to the cost of providing the service, which he estimates at 36 cents per transaction, based on inflation-adjusted calculations the Office of Thrift Supervision provided in 1997. Harkin notes in a release that consumers pay an average fee of $2.66 per ATM transaction, citing Federal Reserve data.
Durbin’s amendments are worrying payments-industry players, who universally point out the lack of formal Senate floor debate on the amendments. And tacking them on to the broader financial-reform bill without further discussion is unfair, they say.
One of Durbin’s amendments would enable merchants to offer consumers discounts for using forms of payment less costly than certain credit cards. Credit cards typically carry interchange rates of between 2% and 3% of the sale, depending on the brand. Merchant acquirers pay interchange to card issuers and pass the expense on to their retailer clients. Merchants claim interchange fees cost them some $48 billion in 2008.
Another of Durbin’s amendments would enable the Federal Reserve to set interchange rates for debit card transactions, and a third amendment would ensure that the U.S. government receives a favorable rate on interchange.
Visa Inc. called Durbin’s interchange amendments an attempt “to sneak rehashed legislation harmful to consumers” into the financial services overhaul bill. The card brand sent a letter asking senators to “see these efforts for what they are—a blatant attempt by retailers to increase their profits at the expense of consumers.”
MasterCard Worldwide said in a statement that any rule enabling merchants to set minimum or maximum transaction amounts for electronic payments would cause havoc at the point of sale and would ultimately penalize consumers. “Network rules currently protect consumers from this type of harm and must be left in place,” MasterCard said in a statement.
In a joint statement to senators, the American Bankers Association, the Independent Community Bankers of America, The Credit Union National Association and the National Association of Federal Credit Unions said Durbin’s amendments would have “devastating consequences” for smaller financial institutions, particularly community banks and credit unions. Smaller institutions offering card payments to their customers likely would be “squeezed out of the marketplace by a protected class of large retailers bent on reaping more profits,” resulting in fewer choices for consumers.
Mallory Duncan, chairman of the Merchants Payments Coalition, which represents the nation’s largest retailers, tells PaymentsSource Durbin’s amendments would be “an important step forward” for merchants in their long fight to get the government to intervene in the interchange debate. “These measures don’t directly address our big issue, which is overall credit card interchange reform. But they would help us.”
No votes have been scheduled yet for either Durbin’s or Harkin’s amendments.
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