Senate Bill Would Limit Debit Card ‘Swipe Fees’

Published May 24, 2010

An amendment to limit interchange fees—also called “swipe fees”—on debit card purchases has passed the U.S. Senate.

The amendment to a proposed financial regulatory reform bill was introduced by Sen. Richard Durbin (D-IL). It passed in May by a 64-33 margin.

The fees typically range from 1 to 3 percent of a debit card transaction’s value. Merchants pay the fees to card issuers. The amendment would not regulate credit card swipe fees.

Amendment supporters tout the measure as consumer-friendly. If merchants pay lower interchange fees, supporters say, the savings will be passed on to consumers.

Helps Retailers, Hurts Consumers?
Opponents—including card-issuing institutions—say regulating swipe fees might help retailers but there is no evidence consumers would see any savings. In fact, they say, card issuers might stop offering incentives programs if they are unable to charge unregulated interchange fees, which would harm consumers.

One of these opponents is the Credit Union National Association (CUNA), which has been working to keep the amendment out of the Senate’s financial reform bill, S. 3217, the Restoring American Financial Stability Act of 2010, whose chief sponsor is Sen. Christopher Dodd (D-CT).

On May 7, CUNA President and CEO Daniel A. Mica sent a letter to every member of the Senate stating his organization’s opposition to the proposed legislation. The Durbin amendment “would make changes to the card payments system which will increase costs and reduce choice for consumers and will give the largest merchants further leverage to harm small businesses, which are already under significant pressures in this difficult economy,” Mica wrote.

George Mason University School of Law Professor Todd J. Zywicki says card issuers and consumers have good reasons to be concerned about the Durbin amendment.

Expected Gains Questioned
Swipe fees exist because consumers demand the incentives programs these fees allow, Zywicki said. In Australia, the only country whose regulation of interchange fees has been studied, there is no evidence the limits led to any consumer gains, said Zywicki.

“It’s a pure wealth transfer to merchants, with a blind faith that merchants might pass this on to consumers. It’s just an exercise in blind faith and wishful thinking without any empirical reality,” he said.

Moreover, said Zywicki, if the regulation of swipe fees does make sense, there is no reason for the bill to regulate debit card swipe fees but not credit card swipe fees.

“The only explanation I can think of is bureaucratic brain-deadness,” said Zywicki. “Nobody knew that this was coming. Congress has had very few hearings on this question. I’ve never heard anybody try to provide an explanation for why you would try to treat debit cards differently from credit cards when it comes to interchange.”

Going ‘All-Out’
“We oppose the bill because of the interchange provision. Were it not for the interchange provision, we would find the bill balanced,” said CUNA spokesperson Patrick Keefe. “We are urging all members of the House to oppose interchange amendments in the financial regulatory reform legislation approved by the Senate. We are calling all our member credit unions—nearly 8,000 of them across the country—to begin contacting their congressional delegations to urge them to ‘remove interchange from the financial regulatory reform legislation.’ We are also asking credit unions to mobilize their own members, and we are bringing people here to Washington the second week of June to urge Congress to drop the interchange provisions.

“In other words: We’ve decided to go all-out,” Keefe added.

Arin Greenwood ([email protected]) writes from Alexandria, Virginia.