Victors in Senate Interchange Skirmish Take Battle to the House

Fresh from their Senate victory May 13, proponents of interchange regulation on Tuesday urged U.S. House of Representatives leaders to adopt the so-called Durbin amendment that could limit debit card interchange and overturn some bank card network rules in order to make it easier for merchants to discount for other payment types and set minimum transaction amounts for credit card transactions.

At a bipartisan news conference, U.S. Rep. Peter Welch, D-Vt., called on House Speaker Nancy Pelosi and House Minority Leader John Boehner to add the amendment from U.S. Sen. Richard Durbin, D-Ill., to the House version of the Senate’s Financial Regulatory Reform Bill as the two chambers reconcile their differences on major financial-industry reform. The Senate attached the measure to its version of the reform bill on a 64-33 vote that drew a surprising number of Republican supporters (Digital Transactions News, May 14).

As in the Senate, interchange-regulation proponents cast Wall Street banks and the bank card networks as bad guys to be reined in by the reform bill. “Just as Goldman Sachs and other Wall Street banks plunged the economy into recession with some of their reckless practices, Visa and MasterCard and the credit card industry have been ripping off small businesses for years,” said Welch, a notable partisan in the interchange fight because he sponsored a bill that would have overturned a number network rules in order to give merchants more control over their payment card expenses (Digital Transactions News, Oct. 8, 2009).

Added U.S. Rep. Keith Ellison, D-Minn., a member of the House Financial Services Committee: “Big banks and credit card companies have had their day in the sun, and today, now we’re calling on our Congress to help the consumer and small businesses to get their day in the sun because they are the engine of our economy.”

Indeed, the interchange fight is taking on more overtones of small versus big business, a dichotomy that can overcome partisan political divisions. “The big get bigger while the small get smaller,” said U.S. Rep. Walter B. Jones, R-N.C. “There are other Republicans that would support this bill, in my humble opinion, because it’s the right thing to do for the American people.”

The chairman of the House Financial Services Committee, U.S. Rep. Barney Frank, D-Mass., earlier indicated he didn’t want to address the interchange issue in 2010, but his colleagues want him to reconsider. Welch said he’s already met with Frank, and that he plans to meet more House leaders. “We’ll be doing lobbying,” he said in response to a reporter’s question about his strategy to get the Durbin amendment included in the final version of the reform bill. “We’re going to be asking our merchants who are in Red states and in Blue states to contact their members [of Congress] and let them know this really means a lot to them. This affects every small business in America.”

The reality, however, is that while small businesses are the sympathetic public face of the interchange battle, card-industry sources say national big-box retailers are lobbying hard for the Durbin amendment because of the potential savings in card-acceptance costs it might bring. Their pressure reportedly helped bring in some Republican votes for Durbin’s measure.

Meanwhile, merchant acquirers are trying to figure out how to make the back-office changes necessary to implement Durbin’s provisions should they become law. The measure would exempt from possible regulation the interchange income of financial-institutions with $10 billion or less in assets—a group Durbin said includes 99% of banks and credit unions. The amendment instructs the Federal Reserve to assess what would be “reasonable and proportional” debit card interchange based on the processing costs incurred. That means there could be one set of interchange rates for a few large debit card issuers and another set for all the others—on top of existing rates based on transaction volume and merchant type.

“I think this is a flawed piece of legislation,” Paul R. Garcia, chairman and chief executive officer of the big acquirer Global Payments Inc., tells Digital Transactions News. “We’d have to totally reprogram.”

In an e-mailed statement to Digital Transactions News, Visa Inc. said, “The Durbin amendment would in effect impose price controls, allowing merchants to shift their costs for accepting debit cards onto the backs of consumers, while merchants continue to receive the value of electronic payments—including faster check-outs, ticket lift, increased security, and guaranteed payment. We believe this is unfair.”

“The amendment also could leave consumers with less choice and higher costs,” Visa said. “This could include an increase in costs for checking accounts and online banking fees or a reduction of debit card benefits like zero-liability protection and rewards. Those who rely on prepaid cards for government disbursements, such as child support, could be particularly hard hit.”

In another interchange development, Welch’s home state of Vermont last week approved what apparently is the nation’s first interchange-regulation law on the state level.