The recent battle in the U.S. Senate between banks and retail merchants was nothing like that between David and Goliath, as described in the Old Testament. In this battle, merchants triumphed over bankers in the quest for billions. The Senate voted to let the Federal Reserve curb the fees that retail stores pay financial institutions when a customer “swipes a debit card.” While the merchants won, I’m not so sure the nation’s consumers have very much to celebrate from this battle. As a result of the vote, the Fed will be allowed to issue final rules on July 21st cutting the average 44 cents that banks charge for each debit card transaction. That fee, typically 1% to 2% of each purchase, according to estimates, produces $16 billion in annual revenue for banks and credit card companies.
The central bank has proposed capping the so-called interchange fee at 12 cents, though the final plan could change slightly. Victorious merchants claim the lowered fees should allow them to drop prices. But the banks said they could be forced to increase charges for things like checking accounts to make up for lost earnings. It shouldn’t be a big shock that each side challenged the other’s claims. Interestingly, based on reports, consumer groups were not a united front in this fight. While U.S. PIRG, which represents state public interest research groups,, said consumers would benefit, the Consumer Federation of America took no formal stance. Instead, it said it was concerned about what both industries might do.
In the vote, Senators trying to thwart the Fed’s rules needed 60 votes to prevail but fell six votes short, 54-45. That delivered a victory for Sen. Richard Durbin, D-Ill., who got the provision placed into last year’s financial overhaul law requiring the Fed’s action. Thirty-five Republicans joined 19 Democrats in backing the unsuccessful effort to block the Fed. Thirty-two Democrats, 12 Republicans and an Independent voted to let the central bank move ahead. Interestingly, Sen. Joseph Lieberman, I-Conn., did not vote.
The roll call vote in the Senate defeated a proposal by Senators 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 fair. It will be most interesting to see how things play out now that the Senate has voted against the banks. Hopefully, things will wind up being good for consumers. Edmund Mierzwinski, consumer program director for U.S. PIRG, said some banks might curtail the rewards programs that many attach to their debit cards, such as awarding cash back or airline miles. But he said checking account fees would not rise.
When one giant battles another grant – regardless of which giant wins – there is concern for how consumers will fare. This battle indirectly affects consumers, but only time will tell exactly what the real effect of this “win” by one of the giants will be.
Source: Associated Press
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