WASHINGTON — Merchants triumphed over bankers in a battle for billions Wednesday as the Senate voted to let the Federal Reserve curb the fees that stores pay financial institutions when a customer swipes a debit card. It was murkier, however, whether the nation’s consumers were winners or losers.
As a result of the roll call, the Fed will be allowed to issue final rules on July 21 trimming the average 44 cents that banks charge for each debit-card transaction. That fee, typically 1 percent to 2 percent of each purchase, produces $16 billion in annual revenue for banks and credit-card companies, the Fed estimates.
The central bank has proposed capping the so-called interchange fee at 12 cents, though the final plan could change slightly.
Victorious merchants said the lowered fees should let them drop prices; banks said they could be forced to boost charges for things such as checking accounts to make up for lost earnings; and each side challenged the other’s claims.
Consumer advocates were not a united front, either. While the consumer group U.S. PIRG said debit-card users would benefit, the Consumer Federation of America took no formal stance but said it was concerned about what both industries might do.
Travis Plunkett, the consumer federation’s legislative director, said the amount of savings that stores pass on to consumers would depend on how competitive their markets are. He said he also worried that the Fed’s current proposal might be too restrictive, which might tempt banks to “use that as an excuse to increase charges on customers they value the least — low- to moderate-income customers.”
Colorado’s retail and restaurant associations hailed the vote as a triumph of Main Street over Wall Street that will reduce prices.
“Next to salaries and health care, this is the second- or third-largest expense for a retailer,” said Christopher Howes, president of the Colorado Retail Council. “The effect on customers will be more retailers staying in business and lower prices.”
The bankers association said it would benefit big-box retail at the expense of small banks and banking consumers, and it questioned whether retailers would pass on the savings to their customers.
“We doubt the retail industry would have spent tens of millions of dollars lobbying Congress just to pass along a 30-cent savings each time we go to the grocery store,” said Don Childears, chief executive of the Colorado Bankers Association. “It makes more sense that they would spend tens of millions of dollars lobbying Congress to increase their profits.”
One Denver retailer, Twist & Shout record-store owner Paul Epstein, said the change is good news for the business but it was too early to tell what the impact will be on consumers. He said he doubts he will cut prices on CDs as a result.
“It may allow me to give raises or Christmas bonuses,” he said. “For me to cut the prices of CDs, the price of CDs has to change. This is just a tiny part of that cost.”
Dwight Lawson, owner of Jabo’s Bar-Be-Q in Greenwood Village, also said the savings won’t be enough to justify a price cut. The various fees Lawson said he still has to pay for debit- and credit-card transactions outweigh any gains he’ll receive from the reduction in the debit-card-swipe fee, he said.
In Wednesday’s 54-45 vote, senators trying to thwart the Fed’s rules needed 60 votes to prevail but fell six votes short. That delivered a victory for Sen. Richard Durbin, D-Ill., the Senate’s No. 2 Democrat, who muscled the provision into last year’s financial-overhaul law requiring the Fed’s action.
Durbin’s support Wednesday represented an erosion from last year, when the Senate included Durbin’s provision in the overhaul bill on a 64-33 vote. Much of the drop was explained by a dozen senators — including Colorado’s Michael Bennet and eight other Democrats — who switched from backing Durbin in 2010 to voting to delay the Fed action on Wednesday.
Of the 12, four are seeking re-election next year: Sens. Kirsten Gillibrand, D-N.Y.; Ben Nelson, D-Neb.; Debbie Stabenow, D-Mich.; and Roger Wicker, R-Miss.
Thirty-five Republicans joined 19 Democrats in backing the unsuccessful effort to block the Fed. Thirty-two Democrats, including Colorado’s Mark Udall, joined 12 Republicans and an independent in voting to let the central bank move ahead. Sen. Joe Lieberman, I-Conn., did not vote.
Wednesday’s roll call shot down a proposal by Sens. Jon Tester, D-Mont., and Bob Corker, R-Tenn., that would have delayed the Fed rule for a year. In the meantime, the Fed and three other agencies would have studied whether the Fed’s current proposal is fair and rewritten it if at least two agencies decided it wasn’t.
Denver Post reporter Greg Griffin contributed to this report.
