Durbin, bankers battle over interchange fees

By Vicki Needham - 04/28/11 01:25 PM ET

The battle between the banking industry and Sen. Dick Durbin (D-Ill.) continued on Thursday as the Senate leader defended his proposal to lower swipe fees charged by banks.

Durbin responded on Thursday to a letter from the American Bankers Association (ABA) reiterating their opposition to any to changes to the interchange system, saying that lower fees will reduce retailer and customer costs.

The Federal Reserve has proposed capping the fees at 12 cents a transaction, replacing a formula that averages 1.14 percent of the purchase price, or about 44 cents, that accounts for $16.2 billion in revenue.

The law has pitted retailers against the banking industry.

Durbin argued that while the ABA is asking Congress to require a study of the issue, it's clear the group doesn't want any changes to the fee system.

"Given that your association has unambiguously stated its opposition to any government regulation, it is difficult for me to believe that your efforts to have Congress stop and study this rule are anything other than an effort to prevent regulation from ever occurring,” he said.

“While I do not expect your association to ever change its position of outright opposition to interchange reform, I will conclude by sharing with you the same words that I recently wrote to the CEO of one of your largest member institutions: interchange reform is necessary and it is long overdue," he said.

Durbin pointed out a position statement on the ABA's website that makes clear "that your association opposes any effort by state or federal governments to regulate interchange rates" and “that Congress should stop and study the Fed’s proposed rule before the rule goes forward.”

In an April 21 letter to Durbin, Frank Keating, president and chief executive of the group, wrote that "confusion about this issue remains, and I feel compelled to reach out to you once more, on behalf of all our members, to again express our concerns and add some clarification."

The ABA argues that the cap on the fees would cause "harm to consumers, banks and the communities they serve."

"This is evidenced by the fact that roughly 86 percent of the comment letters received by the Federal Reserve express opposition to the proposal," Keating wrote. "Congress has the power to step in and stop and study this rule before it goes forward."

Durbin, on the other hand, said "reasonable regulation of the interchange fee system is supported by a broad and diverse array of consumer, business, university, labor and community groups."

"These voices should not be drowned out by the lobbying might of the financial industry.”

Keating noted in his letter that while Home Depot's chief financial officer said the company will save $35 million a year, "she said nothing about passing that benefit on to customers."

Led by Sen. Jon Tester (D-Mont.), the lawmakers are pushing a bill that would delay the provision included in the Dodd-Frank financial reform law that would drastically limit the amount banks can charge retailers for swiping debit cards.

The bill would require the Fed to stop writing rules implementing the measure, and call for a two-year study examining the impact of the provision on consumers, businesses and banks.