The letter, signed by eight Republicans and five Democrats, cautions against developing rules that are "antithetical to our capitalist system and the notion of free enterprise" and says the goal of any rulemaking should be to "minimize negative consequences" stemming from the provision. Senate Banking Committee ranking member Richard Shelby (R-Ala.), Sen. Mark Warner (D-Va.) and Delaware Democrats Chris Coons and Tom Carper are among those who signed the letter.
"We are concerned with the consequences of replacing a market-based system for debit card acceptance with a government-controlled system," the senators wrote, according to a copy obtained by The Hill. "We should all agree that having the government fix prices in almost any venue is a bad idea."
The Fed announced earlier Thursday it would be proposing rules at its upcoming meeting that would implement a provision of the Dodd-Frank Act that requires the Fed to cap interchange fees that banks charge merchants swiping their debit cards so that it is "reasonable and proportional" to the cost of the transaction.
The so-called Durbin amendment on the interchange fees, backed primarily by Sen. Dick Durbin (D-Ill.), was hotly contested by the banking industry, which argued it would lead to billions of dollars in annual lost revenues. The retail industry, which stands to reap substantial savings from the lower fees, backed the proposal.
The provision was sold to lawmakers as helping consumers who would ultimately enjoy lower costs now that merchants had to pay out less in fees. However, the senators contended that since the enactment of Dodd-Frank, analyst reports from retailers make no mention of the benefits to consumers. While retailers enjoy the reduction in fees, banks may try to recoup their losses by passing additional fees on directly to the consumer, they said.
Furthermore, the senators argue the provision will end up harming small banks, even though they are exempted from the reduced fees. Institutions with less than $10 billion in assets do not have to adhere to the Fed-imposed cap, but they will still be at a disadvantage since merchants will be less likely to accept their cards and the higher fees that come with them.
"Regulating interchange rates of financial institutions over $10 billion will force smaller institutions to lower their prices as well in order to be competitive," the senators wrote.