Senate Approves Debit Interchange-Fee Amendment

MARK HAMSTRA

WASHINGTON — Retailers got a big boost this month when the Senate approved an amendment to the financial reform bill that would place restrictions on the fees that debit-card issuers assess to merchants.

The amendment — and the financial-reform bill itself — still have a long way to go before becoming law, however. Late last week, the Senate was still scrambling to find enough support from Republicans to bring the bill — the Restoring American Financial Stability Act of 2010, or S. 3217 — up for a vote.

In addition, the House version of the bill, which already passed, did not include provisions regulating card-interchange fees, and the two bills would need to be reconciled after they pass their respective houses.

The amendment, proposed by Sen. Dick Durbin, D-Ill., and passed by a vote of 64-33, would require debit-card interchange fees to be based on actual costs and would give the Federal Reserve oversight. Currently debit-card fees for MasterCard are estimated at about 1% to 2% of transaction costs, according to a statement from the National Association of Convenience Stores.

In addition, the amendment would allow retailers to offer discounts for customers to use competing card networks and for customers to pay by cash, check or debit card, NACS said. Retailers could also choose to decline credit cards for small purchases — something many already do in violation of the rules of card issuers, according to reports.

The amendment does not address credit-card interchange fees.

Retailers were cautiously optimistic about the amendment last week, saying that decreased fees would be reflected in lower prices for consumers.

“We and all other retailers would benefit if that legislation were to pass,” said Douglas Scovanner, executive vice president and chief financial officer of Minneapolis-based Target Corp., in a conference call with analysts last week discussing first-quarter results (see Page 4.)

“Given the hotly competitive nature of retailing in the United States, it is a virtual certainty in my mind that the vast majority of that benefit would be passed along to consumers, to our guests and customers of all other retailers, but it's a long way from being law at this point even though it's a law that makes good sense to me from a public policy standpoint,” he said.

Leslie G. Sarasin, president and chief executive officer, Food Marketing Institute, Arlington, Va., described the Senate's passage of the amendment as “a major stride toward restoring fairness and reason to the debit-card interchange fee system.”

“Customers will benefit as the amendment allows retailers greater flexibility in offering them discounts for lower-cost forms of payment,” she said, commending Durbin for leading the amendment's passage.

Tom Wenning, executive vice president and general counsel, National Grocers Association, also based in Arlington, also commended Durbin and described the amendment as a “significant win for consumers and merchants.”

“After more than four years of educating members of Congress, passage of the Durbin amendment breaks the legislative logjam to offer consumers and merchants relief from excessive interchange fees and abusive rules,” NGA said in a prepared statement.

The Merchants Payments Coalition, a network of associations representing a broad swath of U.S. businesses, said it sent a letter to all 100 senators asking that they vote for the bill “and take a stand for merchants and consumers.”

As previously reported, the amendment only affects banks with $10 billion or more in assets, which would exempt many small community banks and credit unions.