Visa Offered 35% Interchange Cut for Small Merchants on Eve of Tester-Corker Vote

n

It was Visa’s Hail Mary pass: If the U.S. Senate would delay the Federal Reserve’s draconian debit card interchange regulations called for by the Durbin Amendment, the world’s largest card network would cut debit interchange by 35% for small merchants.

n

That’s the gist of a June 8 letter purportedly from Visa Inc. chairman and chief executive Joseph W. Saunders to U.S. Sen. Joe Manchin, D-W. Va., a copy of which was obtained by Digital Transactions News. On June 8, an amendment to delay Durbin’s provisions for further study was up for a Senate vote.

n

“We feel strongly that it is important to give the regulatory bodies additional time to assess the impact of the legislation,” the letter says. “This more thoughtful approach will result in a better solution for U.S. businesses and consumers. Therefore, we are willing to make a reduction of debit interchange to help small businesses, i.e., those with $10 million or less in total sales, upon passage of the Tester-Corker Debit Interchange Fee Reform Act. During the study period and until the new implementation date, Visa will lower by 35% the debit interchange rates applicable to transactions at small merchants, which make up more than 90% of all U.S. businesses. This will enable the rate adjustments intended by Congress to immediately benefit small businesses and not await the outcome of the study and regulation.”

n

Accepting Visa’s promise might have given Manchin, West Virginia’s former governor who came to the Senate via a special November 2010 election, political cover to vote for a measure backed by the unpopular banking lobby by enabling the Democrat to say Visa would deliver financial relief for small businesses right away.

n

But considerable mystery surrounds the letter. It remains unclear, for example, how many senators received it and what effect, if any, it had on the Tester-Corker vote. Asked by Digital Transactions News about the document, Visa refused to comment. A Manchin press officer did not return a call asking for comment. A spokesperson for Senate Majority Whip Richard Durbin, the Illinois Democrat who sponsored the debit amendment, was unavailable for comment on Tuesday. And several lobbyists contacted by Digital Transactions News were unable to confirm if other senators received it.

n

Manchin was among the 54-45 majority voting for the delay, but Visa and its allies still lost the battle because the Tester-Corker measure needed 60 votes to take effect. Sens. Jon Tester, D-Mont., and Bob Corker, R-Tenn., sponsored the delay measure. In the days and weeks ahead of the vote, reports from Washington said Tester had many supporters, but that any vote would be close.

n

The Durbin Amendment, a part of the sweeping Dodd-Frank financial-reform law Congress passed last year, calls for the Fed to have “reasonable and proportional” debit card interchange controls in place by July 21. The draft plan from the Fed calls for 12-cent maximum transaction caps, which would amount to a cut of more than 70% from current averages. The law regulates only the interchange of issuers with more than $10 billion in assets.

n

The Fed was supposed to have issued its final rule in April, but said it wouldn’t meet that deadline because of the overwhelming number of comments it received to the preliminary regulations. The central bank has promised to have its final version out by the July 21 implementation date. Reuters reported on Tuesday that the Federal Reserve Board will meet June 29 to consider the final rule.

n

Retailers are hailing the coming debit card price controls because they will cut billions of dollars annually from their expense ledgers. But banks that issue debit cards, including small banks whose debit interchange won’t be regulated, have strongly opposed them, along with the payment networks that set interchange rates. The American Bankers Association on Monday sent a letter to Federal Reserve Chairman Ben Bernanke urging the Fed to revise its draft rule, saying it “will do great harm to banks throughout the country, and particularly to community banks.”