By Peter Schroeder - 02/17/11 02:41 PM EST
That provision, dubbed the Durbin amendment since its primary backer was Sen. Dick Durbin (D-Ill.), requires the Fed to dramatically reduce the amount of fees banks can charge retailers every time they swipe a customer's debit card.
Banking and merchant advocates are scheduled to testify Wednesday before a House Financial Services subcommittee on interchange fees.
Both retailers and banks contend they have consumers' best interests at heart, as banks warn the caps would force them to raise fees elsewhere, while retailers argue they will be able to lower prices thanks to the lower fees.
Banks have repeatedly argued that retailers won't pass on those savings, but rather will simply use the new revenue to pad profit margins.
In the prepared testimony listed on the committee's website, Josh Floum, general counsel for Visa, uses a quote from a merchant official that seems to indicate businesses will try to hold on to that extra cash.
Floum quotes 2008 congressional testimony from Thomas Robinson, vice president of regulations for the National Association of Convenience Stores. Floum quotes Robinson as telling the House Judiciary Committee that "there is not a businessman that doesn't attempt to keep the margin." He points to the comment as indicative that there is not the "faintest expectation" that retailers will pass along savings to shoppers.
But retail advocates were quick to point out that that snippet misrepresents Robinson's comments.
Robinson's full quotation paints a different picture. He goes on to say, "But the competition always drives it back out. And when you have a competitive market — and we definitely have a competitive market, unlike some others — those benefits will go back to the consumer."
"This is yet another example of how Visa and its allies distort facts to make their case," said Brian Dodge, senior vice president of the Retail Industry Leaders Association. "Misleading Congress is a very bad idea, and Visa's willingness to do so shows just how desperate they are."
Wednesday's hearing comes one day after a report from the financial industry stated that consumers would ultimately pay the price on interchange limits, which they argued amount to "blatant price fixing." In addition, they argued that huge retailers would enjoy most of the benefit, not small businesses.
Under the Durbin amendment, the Federal Reserve is required to impose limits on interchange fees.
The Fed's proposed rules implementing the provision, released in December, would limit fees to seven to 12 cents per transaction, a 73 percent drop from the current 44-cent average. The Fed is required by Dodd-Frank to finalize those rules by April 21, but central bank officials have indicated that deadline could slip if they conduct more research into the subject.