Banking Industry has Durbin Amendment Under Fire

By John Lofstock and Erin Rigik.

The Durbin amendment to the Dodd-Frank Consumer Financial Protection Act, which would give the convenience store industry much-needed relief on debit card transactions, could be delayed as a result of a new bill introduced March 15 by Senator John Tester (D-MT). Any such delay would be “a slap in the face to small business owners and consumers across the country,” said NACS President and CEO Hank Armour.

The legislation, S. 575, seeks to delay the bill for two critical years, after which time Jim Ellis of Prism U.S. Political Analyst, noted Republicans could gain a Senate seat away from Durbin, which could further impede chances of interchange reform proceeding, without the driving force behind the amendment in office.

At advocacy briefings in Washington this week with NACS and the trade press, five U.S. congressman told that any such delay would likely spell doom for Durbin. They urged retailers to aggressively let their voices be heard by contacting their congressional representatives either in person, by telephone or email.

In an interview with CSD and other trade media, Rep. Peter Welch (D-VT) said the Tester bill, “Calls for delay but seeks to derail. This is Washington speak for killing legislation. It is very essential that the retailers and merchants throughout the country…they have to make their voice heard,” he said. “They were effective in having their voice heard, which I think is a major reason that we passed (the Durbin Amendment) against the lobby of the big banks. And now it’s a counter attack by the big banks and Visa and MasterCard and our defense will depend on how mobilized our merchants have become. Anything they do in Washington is helpful, but they can also act in a very effective way back home when they talk to legislatures because the members of congress have to understand how serious an issue this is for the local merchants.”

Rep. John Shimkus (R-IL) said he was surprised when Senator Jon Tester (D-MT) introduced a bill in an effort to delay implementation of the Durbin amendment.

“I think most members (of Congress) think the fight is over (with passage of the Durbin Amendment). We don’t want to go into the battle anymore. Having said that, I’d be shocked if (the new bill by Senator Tester) really moved anywhere,” he said, adding, “I think it is fool-hearty to try to move something in the floor of the house in this environment that would incentivize, in essence, a duopoly (by Visa and MasterCard).”

The reforms, scheduled to take effect this summer, would limit the price-fixing done by the nation’s largest banks so that they would be required either to compete on their debit card swipe fees or charge an amount that’s “reasonable and proportional” to their costs.

U.S. Congressman Reid Ribble, representing Wisconsin’s eighth district, at a dinner with NACS members and the industry trade press on March 15, urged members of the retail industry to continue to bring their concerns, such as those involving swipe fees and ethanol regulations, before Congress so representatives can further do their job in understanding the issues impacting retailers and how they can best serve their constituents on key issues.

While just last week convenience store retailers arrived on Capitol Hill to put their concerns about swipe fee reform directly before the government in 185 meetings in both the House and Senate, the banking and credit card industries have also been hard at work hitting Congress with an onslaught of messages stating their case against interchange reform, which is why it is crucial that retailers continue to make their voices heard now more than ever before. The banking industry, in fact, is estimated to have spent more than $10 million in lobbying efforts over the past few weeks alone leading up to the introduction of the Tester bill.

NACS and its members emphasized that Tester bill must be taken seriously. “After eight years of work we could lose this,” said Lyle Beckwith, Senior Vice President of Government Relations. Still, he added big banks and credit unions don’t have a strong argument. “Everything they say is based on a hypothetical. Everything we talk about is factual.”

Beckwith, Armour and John Eichberger, vice president of government relations for NACS, said retailers need to take action.

“Congress should be standing by Main Street and not kowtowing to Visa, MasterCard and the big TARP banks that three years ago brought our economy to its knees and whose executives last year, in just nine months, were paid more than $130 billion,” Beckwith said. “The worst thing that could happen is that our industry sits back and thinks the work is done, when it’s not. The banking lobby is spending millions to overturn the Durbin amendment and we need our members to be heard. Get on the phones today. Call your representatives and be specific about how the Tester bill will affect your business.”

NACS Vice Chairman of Technology Pat Lewis, who operates 13 Oasis Stop N Go convenience stores in Idaho, agreed. “This amounts to TARP 2. Another Wall St. bailout bill for the big banks,” Lewis told CSD yesterday. “They continue to get handouts by complaining about how the system is hurting them. Our voices need to be heard to set the record straight.”

Understanding Durbin
On Dec. 16, 2010, the Federal Reserve issued a proposed rule, as directed by Congress in the financial services reform bill, to issue rules to ensure that debit swipe fees are reasonable and proportional to the processing costs incurred. The Fed also asked for public comments to the rule, which are expected to be finalized on April 21 and implemented by July 21.

The Fed’s proposed rules would still allow banks to make a reasonable, if not sizable, profit on debit transactions. The Federal Reserve did not seek to eliminate debit swipe fees, but to define a rate that was fair and equitable, with proposed per-transaction rates of seven cents or 12 cents. A survey of banks by the Fed found that debit swipe costs averaged around four cents per transaction, providing the banks with a profit margin of either 75% or 300% based on the proposed rulemaking.

Tester has said that he is concerned about small banks being hurt by the rules. However, Durbin took care of that concern last year as part of the amendment that was approved by Congress. The legislation states explicitly that banks with under $10 billion in assets will be exempted from the rates. Further, Visa, Star and five other networks have indicated they will support two-tiered pricing to allow small banks to charge more than big banks.

Because of Honor-All-Cards rules in debit and credit card contracts, retailers are prohibited from treating one debit card differently than another debit card.
“Congress voted last summer to fix a clearly broken system, and the Federal Reserve made significant, thoughtful proposals to do so,” said Armour. “This bill seeks to preserve the anti-competitive behavior of the banks and credit card companies and is not what 5.4 million of our customers had in mind when they signed their names to petitions demanding reform.”

Swipe fee reform would add jobs and transfer funds directly from banks to consumers, according to “The Costs of Charging It in America: Assessing the Economic Impact of Interchange Fees for Credit Card and Debit Card Transactions,” a report released last month by Robert Shapiro, former under-secretary of Commerce for Economic Development. Extrapolating the findings for debit swipe fees alone, swipe fee reform would add 90,000 new jobs and provide $10 billion in relief to consumers.

“While Congress talks about the importance of revitalizing the economy and growing badly needed jobs, those [in Congress] supporting today’s bill are instead siphoning consumers’ hard-earned wages to the banking industry,” said Armour.



  1. Evanmaning80 says:

    Interesting that everything I read about the Durbin amendment, I see lots of talk about lowering fees to help consumers. I work in the processing industry and I have never heard one of my customers (business owner) tell me “wow, you saved me $800 a month in processing fees, I’m gonna go lower my prices!!”.

    The bigger problem is huge banks charging a disturbingly high markup over cost for processing fees, and robbing business owners blind. There is room for all parties to make a fair profit and still provide merchants with easily available processing at a fair price.

    • Anonymous says:

      What you don’t see is that $800/month could be a new part time employee’s pay or a pay raise for an existing employee. It could also be put towards expanding the business to provide more goods and services that the local community wants. It could also be used to increase a business’s charitable donations. There are many ways that money can be used to give added value to the community that don’t involve lowering prices AND why would your customers disclose their business plans to you in the first place? You speak as if you have some sort of right to know how the money will be utilized. It’s really not your business to know what they do with the money.

  2. losing_rewards says:

    This is all way over my head. I’m not in finance; I’m a stay at home mom. Here’s what I know about all of this: I just got a letter in the mail from the very large bank that I have my debit card with and it says I’ll no longer be earning rewards with them after July 19. This stinks for my family because we usually got back $200-$300/year. I guarantee not one retailer out there is going to lower their prices with the price of oil going up – which stings even more since I would have been earning rewards on those debit card purchases at the pump. Thanks a lot, Dick Durbin and Congress :(>

    • Anonymous says:

      If you’re dissatisfied with your present card issuer, go find another one who offers the services you want. Your card issuer may have reasons completely unrelated to this legislation for canceling your rewards program, but taking your business elsewhere will send a message that you are unhappy. Suffering in silence only tells the bank that they can do whatever they want to you and you’ll let them get away with it. Who would you rather see getting the money from the swipe fees,anyway? The big banks who bankrupted the economy, or local business owners who are the creators of most of the jobs in this country and the providers of goods and services to the communities where they are located? Smaller banks are exempted from the legislation anyway, so find yourself a smaller, local bank that offers the services you want. You frequently get treated better at the small banks because they value your business more than the big banks where you’re nothing more than an account number and source of income.

  3. MJL 9034 says:

    The real kicker is the costs for debit go down to the processors (the ISO’s) for most merchants on bundled pricing: such as Qualified, Mid-qualified etc and not to the merchant or the consumer. In fact the ISO’s will make bigger margins on debit transactions in the short run. Merchants wont see any savings at the point of purchase and most small to medium size merchants wont save either. Only the big retailers and the card issuers will lose revenue and cut back on rewards, etc…

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