WASHINGTON — Consumers are caught in the middle of a fight between financial institutions and merchants as the Senate approaches a showdown vote over whether to block the Federal Reserve from capping fees that stores pay banks every time a shopper swipes a debit card.
The vote, scheduled for Wednesday, is the climax of a long, expensive lobbying battle between two industries that lawmakers hate to cross because of their influence back home and their campaign contributions.
“Those are folks who have a lot of presence in all our states,” said Sen. Mark Pryor, D-Ark., who added he was undecided. He said, “This is one of those where people have friends on both sides.”
At stake is whether to slash the $16 billion the Fed says merchants pay banks and credit card companies for the 38 billion times consumers use debit cards annually. The Fed says the fees currently average about 44 cents per swipe, which under a proposal the central bank unveiled last year would be capped at 12 cents per transaction.
Last year’s financial overhaul law ordered the Fed to issue a rule that will take effect on July 21. The Senate vote will be on an effort to delay the regulations for a year and order the Fed and three other agencies to study whether the proposal is fair — and rewrite it if at least two agencies decide it is not.
Each side was claiming to have consumers’ interests at heart. Merchants said today’s fees, typically 1 percent to 2 percent of the purchase, push their prices higher and make it tougher to hire new workers. Banks say the Fed proposal discounts overhead costs like preventing fraud and argue that slicing the fee would force them to find other sources of revenue such as raising their charges for checking accounts.
The fight over so-called interchange fees for debit cards crosses party lines. While No. 2 Senate Democratic leader Richard Durbin of Illinois is the chief supporter of the Fed’s proposal, the main foes are Sens. Jon Tester, D-Mont., and Bob Corker, R-Tenn.
The provision requiring the Fed to set fair debit card fees was included in last year’s financial overhaul law by a 64-33 Senate vote and was written by Durbin. There was no separate House vote on the issue. President Barack Obama signed the overall law after Congress passed it over solid Republican opposition.
Durbin, using Senate procedures, is forcing Tester and Corker to gather support from 60 of the 100 senators to win. Though aides and lobbyists on both sides say Tester could be close to prevailing, they concede it will be tough to defeat the veteran Durbin, who wields considerable influence as a party leader.
Even so, Durbin faced some challenges. Six senators — including five Democrats — who voted for his amendment last year are no longer in the Senate. And at least two senators who supported him a year ago — Kay Hagan, D-N.C., and Mike Crapo, R-Idaho — are backing Tester’s effort to delay the Fed rules.
As debate began Tuesday, Durbin recalled the $700 billion bailout passed in late 2008 as the financial industry teetered on the brink of catastrophe — followed by the widely unpopular bonuses that many financial firms awarded executives. He said the largest banks were “fighting viciously” to block the Fed rule because they have the most to lose.
“Are we going to be shaken down a second time?” he asked. “That’s what this debate is all about.”
Tester, a first-term senator facing re-election next year in a GOP-leaning state, said he was not championing big banks.
“No one needs to shed a tear for them,” he said on the Senate floor.
Instead, he said he was on the side of small banks and credit unions that dot his rural state, which he said could vanish if their revenues collapse.
“Fewer banking options in rural America is a death knell for rural America,” Tester said. “But that is where we are headed.”
“To call this a Wall Street bailout is beyond demagoguery,” Corker told reporters.
Financial institutions and merchants spend millions of dollars a year lobbying on Capitol Hill, and their attempts to sway the vote are far from over.
A radio ad in Montana, sponsored by the National Retail Federation and the Montana Retail Association, took direct aim at Tester.
“He’s helping the big banks delay debit card swipe fee reform,” the announcer says. “Sen. Tester says he’s for the consumer, but Tester lets the big banks swipe our money.”
Ads from the other side make similar claims. In one radio commercial that ran recently in Idaho, an announcer says of the Fed proposal, “This government regulation will hurt our local community banks and credit unions and could force you to pick up the tab for giant retailers,” a reference to the big-box retail behemoths that banks and credit unions say would be the biggest beneficiaries if the fees are reduced.
Underscoring the unlikely coalitions the battle was spawning, Tester’s proposal was being supported by the conservative Americans for Tax Reform on the ground that the Fed proposal would impose price controls. Supporting Durbin was the Armed Forces Marketing Council, whose members operate exchanges on military bases and which argued that the fees hurt military families.