The Durbin Amendment Ignites a Lobbying Frenzy on Capitol Hill

Credit-union representatives descended on Capitol Hill Tuesday to lobby Congress against proposed debit card interchange regulations in the Senate version of the sweeping financial-reform bill. On Wednesday, two frequent political enemies—banks and credit unions—will declare that they’ve stopped fighting each other so they can fight the so-called Durbin Amendment together. The lobbying efforts come in the wake of another research report that warns of unintended consequences from debit card price regulation and estimates that government-benefit prepaid card programs could lose more than $140 million in revenue should the amendment become law.

In a news release Tuesday morning, the credit-union trade group Credit Union National Association Inc. (CUNA) said more than 800 people from credit unions would “engage their respective elected representatives to drum up opposition to portions of the
Senate’s financial regulatory-reform package that address interchange fees.” CUNA expects its “Hike the Hill” effort to reach every member of Congress.

CUNA also is running print and radio advertisements in markets “where we feel there are influential lawmakers on this issue,” a CUNA spokesperson tells Digital Transactions New by e-mail. The primary effort, however, is grassroots contact with Congress through e-mail, regular mail, fax, and phone calls, the spokesperson says. CUNA members have made 300,000 contacts since starting their lobbying effort on May 24. “With some more hard work, we hope to hit 500,000 contacts by close of business Thursday,” the spokesperson says.

“While retailers have argued that reducing interchange fee expenses would allow them to pass on savings to consumers, CUNA has countered by stating that these new rules could allow merchants to direct consumers to use preferred forms of payment,” the release says. “CUNA has also said that this rule change forces the Fed into the role of a price-fixing body, when interchange fees should be driven by market forces.”

CUNA’s is just the latest effort in an intensifying lobbying campaign that has financial institutions, payment card networks, and independent sales organizations trying to defeat the Durbin Amendment, and retailers and consumer groups trying to cement it into the final version of the bigger financial reform bill. In fact, the proposal from U.S. Sen. Richard Durbin, D-Ill., that the Senate added to its version of the reform bill May 13 has succeeded in uniting credit unions and banks, the latter of which don’t like the former’s tax exemptions. At 10:30 a.m. Eastern on Wednesday, the top brass of CUNA, the National Association of Federal Credit Unions and the Independent Community Bankers of America, a small-bank trade group, will have their first-ever joint appearance in the form of an online news conference at which they’ll air their objections to the amendment.

Durbin’s plan would direct the Federal Reserve to assess what’s “reasonable and proportional” in debit card transaction costs, create a two-tiered interchange system that could lower interchange rates for big issuers while exempting small banks and credit unions, and give card-accepting merchants greater freedom to discount for other payment forms or set minimum and maximum sale amounts for cards. The House of Representatives, which passed its version of the reform bill long before Durbin introduced his amendment, is expected on Wednesday to name its members of the conference committee that will reconcile the two bills.

Last week, Midwestern gas station/convenience-store chain Speedway SuperAmerica LLC presented petitions with 1.68 million signatures asking Congress to regulate interchange fees generically. Speedway SuperAmerica’s drive brings to 5 million the number of customer signatures c-stores have obtained asking the federal government to give retailers interchange relief (Digital Transactions News, June 3).

Government officials in some states that distribute unemployment and other public benefits via prepaid cards have expressed reservations about the amendment, saying it might reduce the revenues of the mostly large banks that issue such cards and thereby undercut the card programs. In a new report, research and consulting firm Mercator Advisory Group Inc. estimates the income shortfall to issuers and their agency partners at $146.5 million. Mercator would not publicly reveal details of its methodology, but says it arrived at its figure based on $24 billion in annual disbursements through the potentially affected prepaid cards, including a federal Social Security card program. Mercator estimated transaction volumes and applied current signature-based debit card interchange rates and an estimate of future, lower interchange based on PIN-debit rates.

Also in their report, Mercator analysts Ken Paterson and Patricia Hewitt call for a go-slow approach to assess what they say are possible unintended consequences of Durbin’s proposal. They include merchant steering of customer payments away from cards and toward less-efficient cash and check payments, and pressure by big banks on the bank card networks to reduce smaller issuers’ interchange rates so that they align with the regulated rates of the estimated 100 largest debit card issuers.

While Durbin in late May accused Visa Inc. and MasterCard Inc. of trying to force small banks and credit unions into the networks’ fight against his amendment, the financial institutions have been expressing reservations about his so-called “carve out” that leaves them with higher interchange ever since the amendment appeared. Small institutions say a two-tiered system could encourage merchants not to accept their cards. “The reaction was pretty quick, which indicates to me that we need to give credit to that market segment that they understand the repercussions of this to the business,” says Hewitt, director of the Debit Advisory Service at Maynard, Mass.-based Mercator.