Momentum grows in House for repealing limits on debit fees

Although banks appeared to get a big boost Wednesday in their effort to fight off new limits on debit card fees, they still face an uphill battle in getting any changes through Congress.

This week, Rep. Barney Frank (D-Mass.), the ranking member of the House Financial Services Committee, told Bloomberg he'd be willing to work with the GOP to address new limits on "interchange" fees, which are fees banks charge retailers every time one of their debit cards is swiped.

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"If they want to do something on it, I'll work with them," Frank said.

The comment appeared to suggest a new bipartisan effort to rework the provision, since top Republicans on the committee could be receptive to working with Frank on the issue. Financial Services Committee Chairman Spencer Bachus (R-Ala.) and committee vice-chairman Rep. Jeb Hensarling (R-Texas) have both been critical of the provision.

Frank's comments appear to have rejuvenated a push from critics of the provision to get it repealed.

One day after Frank's comment, the National Association of Federal Credit Unions sent a letter to Senate Banking Chairman Tim Johnson (D-S.D.) and ranking member Sen. Richard Shelby (R-Ala.) calling on them to repeal the provision.

The debit amendment enjoyed broad support in the Senate, however, so rounding up enough support to scrap it could be difficult, observers say.

"I could see a repeal ... passing the House, but I don't think that changes matters," said Brian Gardner, senior vice president of Washington research at Keefe, Bruyette & Woods. "The question in my mind is, 'Can it pass the Senate?'"

At the center of the debate is the "Durbin amendment," which was a late inclusion in the Dodd-Frank financial reform law. The provision, backed by Illinois Sen. Dick Durbin (D), requires the Federal Reserve to impose limits on how much banks can charge merchants on interchange fees.

Retailers have hailed the measure as finally putting limits on ever-increasing debit card fees.

Banks, in contrast, say it is an unfair and arbitrary governmental imposition on the private sector and warn it will force them to increase other fees to make up the difference.

The politics surrounding interchange are murky. The provision spurred aisle crossing in both directions, as some Democrats opposed Durbin's proposal while some Republicans backed it. It was approved in a 64-33 vote.

Critics of the provision have enjoyed some high profile support, as both Frank and retired Sen. Chris Dodd (D-Conn.), the two titular sponsors of the Wall Street reform law, have spoken out against it. And a bipartisan group of 13 senators warned the Fed to tread lightly on implementing the rule in a December letter.

Durbin has showed no signs of weakening his support of the fee limits.

"If some people want to repeal a law that gives billions of dollars per year of relief to small businesses and their customers in order to protect the bottom line of the nation's biggest banks, that’s a debate we're happy to have," said Durbin spokesman Max Gleischman.

Even if some lawmakers that supported the measure are unhappy with how it is being implemented, that does not necessarily mean they would push for repeal, according to Gardner.

"There was definitely a lot of buyer's remorse," he said. "That doesn't mean they necessarily want to come back and do a 180."

"I'm still pretty confident that there's no appetite in Congress to take up this issue and change things," said Douglas Kantor, counsel to the Merchants Payment Coalition, which backed the amendment.

Backers of the fee limits are hungry for even more fee cuts, and are hoping to extend ones applied to debit cards to credit cards as well. Any revisiting of the fee issue via legislation could open the door for that push, they said.

"The banks aren't the only ones with additional asks," said Rachel Wolf, spokesperson for the Merchants Payment Coalition.

Critics of the measure are also exploring other ways to postpone or mitigate the effect of the provision. One effort has critics pressing the Fed to conduct further study on the matter, putting off the implementation of the rules past the April deadline mandated by Dodd-Frank.

Fed officials have already suggested that deadline may be out of reach, and they want to gather more info on how the limit could be adjusted to accommodate a bank's fraud-prevention costs.

The Fed's proposal released in December would limit fees to seven to 12 cents per transaction, a drastic 73 percent drop from the current 44-cent average.

It is accepting public comments on its proposed rules until Feb. 22.