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A bipartisan group of nine US Senators, led by Sen. Jon Tester (D-Montana), is backing a new bill that would delay for two years mandated lower swipe fees for debit card transactions. The mandate is part of financial reform that passed the Congress and was signed into law by President Barack Obama last summer; the new bill calls for a two-year delay and a one-year study of what the impact of such a mandate would be.

The Federal Reserve has proposed that swipe fees be set at 12 cents per transaction, compared to the current average of 44 cents per transaction that is currently charged by the banks.

According to the New York Times, “The proposed rules have faced complaints and heavy lobbying from banks, credit unions and credit card companies, which say that cutting and capping fees mean that the fees will fail to cover the cost of processing the transactions and accounting for fraud ... Although there is growing uneasiness with the regulation, it is not at all clear the senators will succeed in upending the law, which easily passed the Senate last year and was a cause championed by a leading Democrat.”

Retailers and consumer groups have largely supported the mandated limits on swipe fees, saying that the high fees and lack of regulation force retailers to raise prices to cover them. Lower fees, they say, will result in less expensive products, which would be stimulative to the economy.

The Times continues: “The Federal Reserve did its own study of the debit fee market in preparing its proposal. But Mr. Tester said he believed that the Federal Reserve’s research on the issue did not take into account the costs of small community banks, which generally have higher per-transaction operating costs than do giant card issuers like Citigroup and Chase.

“Smaller banks, those with less than $10 billion in assets, were exempt from the limits, but Ben S. Bernanke, chairman of the Fed, and Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation, told a Senate hearing last month that they had doubts a two-tier system of debit fees was practical.”

Trade associations representing various retailer groups were quick to respond to the new legislative proposal.

• “The National Grocers Association (N.G.A.) is disappointed that a group of Senators has chosen to side with the big Wall Street banks over Main Street businesses and urges the Senate to reject efforts to pass this legislation,” said NGA President/CEO Peter Larkin. “The same big banks that received billions in tax payer bailouts are now asking Congress to support another bailout by trying to delay and kill a rule to reform anticompetitive debit swipe fees before it's even written. Each month of delay costs community-focused grocers, small businesses, and our customers $1 billion more a month.”

• “Interfering with the process even before the final rule is written is nothing more than pandering to the giant banks,” said Jennifer Hatcher, senior vice president of government and public affairs at FMI. “Delaying swipe fee reform has consequences that will cost merchants and their customers $1 billion each month and will cost our economy 95,000 much-needed jobs each year.  Killing jobs isn’t what we were promised in November.”

• “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 9 months were paid more than $130 billion,” said NACS senior vice president of government relations Lyle Beckwith. And NACS President/CEO Hank Armour called the proposed delay “a slap in the face to small business owners and consumers across the country.”

• “We are extremely surprised to see a bill introduced that favors Wall Street banks and price-fixing card companies over Main Street merchants and their customers,” National Retail Federation (NRF) Senior Vice President and General Counsel Mallory Duncan said. “Merchants are ready to pass lower swipe fees along to consumers in the form of discounts and other benefits as soon as reform goes into effect in July but we can’t do that if Congress lets bankers stand in the way.”

“The banks and card companies claim they want to study swipe fee reform but the truth is they want to kill it,” Duncan continued. “Congress has already conducted more than half a dozen hearings on this issue, and the GAO and Federal Reserve have done studies of their own. The time for study is over. The time to reduce these fees and take bankers’ hands out of consumers’ pockets has come.”

• “Despite the American people’s repeated disapproval of bank bailouts, the Tester bill is just that, this time at the expense of retailers and their consumers,” said Katherine Lugar, executive vice president for public affairs at the Retail Industry Leaders Association (RILA). “The past three years have been defined by the economic hardship caused by big bank recklessness and the $700 billion in taxpayer dollars used to bail them out. Yet, just as merchants and their consumers are about to finally see relief from the excessive debit card fees associated with the broken debit market, the biggest banks have launched a full scale campaign to take it away."
KC's View:
The best statement, IMHO, came from FMI member Mike Novak, a Montana supermarket retailer:

“We invite our friend Senator Jon Tester to visit Mike’s Thriftway in Chester, Montana where he and Sharla have shopped many times.  We will open our books to him to show him what it is like to run a grocery store where the bank makes twice as much on an order as we do and the customer pays too much at a time when they don’t have any extra to pay.”

If Tester does not take him up on that offer, he’s a fool. I wonder if banks - even “small community banks” - would be as willing to open their books to him and the other senators.

It is amazing what millions of dollars in lobbying money can do.

I have to imagine that even if the delay can get through the Senate and the House of Representatives, there is no way that it gets signed by President Obama - he cannot afford to be seen as backing the banks - and not consumers - as he goes into a presidential election cycle.

What is amazing to me is how much anger and antipathy is expressed by the trade associations toward the financial services community. I’m glad; the banking community’s pure and unadulterated greed, facilitated by a lack of regulation and oversight, helped to create the financial mess that the country has been trying to extricate itself from for the past two years. Nobody has gone to jail, and it seems that there is little institutional memory.

The game has been rigged in favor of the banks and the bankers for too long. To quote a certain politician, the time for change has come.