We Owe Them A Debit of Gratitude

March 18, 2011 — -- And so, we begin anew.

During the Great Congressional Financial Services Smackdown of 2009 and 2010, Illinois Democrat Richard Durbin inspired fellow Senators to pass an Amendment to the Dodd-Frank Act directing the Federal Reserve to study and, hopefully, reduce the relatively unknown "swipe fees" that banks collect from retailers every time a consumer uses a debit card to make a purchase. Last summer, the Federal Reserve responded with a call to cut swipe fees from an average of 44 cents per transaction to 12 cents. Akin to the achievement of universal peace, this regulatory triumph caught everyone by surprise.

For years, merchants had railed against what are formally known as interchange fee charges, arguing that the banks were gouging them (and, in turn, the American consumers who were paying for swipe fees by way of higher retail prices) to the tune of $21 billion annually. In the wake of the reform proposal, banks got nervous. Financial services industry lobbyists pushed back mightily but, alas, were overwhelmed by populist sentiment. Caught off-guard and humiliated that this pro-merchant, pro-consumer, bank-opposed provision survived the cutting room floor, the industry, their lobbyists and captive Congressional compatriots vowed to claw their way back during the regulatory process.

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What does this all mean for consumers? The question of how any ensuing financial redistribution between banks and retailers might impact consumer pocketbooks remains to be seen. The immediate win is one of opening up previously cloistered conversations to the public—Congressional debate and media attention surrounding the otherwise arcane issue of interchange fees has brought to light the role such policies play in everyday consumer transactions.

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The Federal Reserve is facing an April 21 deadline to finish work on regulations that give life to the concept of lower fees and. . . they're baaaack. Those previously outmaneuvered bankers, lobbyists and legislators have been working overtime to regain the advantage lost by way of amendment, delay or evisceration of the legislation during those dog days of summer 2010. This week, legislators came through on their promise, introducing bills in the Senate and House that would, respectively, delay implementation of the rule by either two years or one. The banks are doing what they have done best for decades, arguing that the proposed fee reduction will inhibit their ability to profitably issue debit cards to customers, force a limitation in the amount that can be charged per transaction, or push them to invent or increase other consumer-related charges in order to contend with the costs. They also claim that retailers will generate unreasonable profits that will never translate into the consumer savings promised by Durbin Amendment supporters.