Senate Rejects Delay of Debit Card Fee Cap; Consumers Could Take Hit

Published June 8, 2011

The U.S. Senate has struck a blow against big banks by failing to pass a measure that would have postponed the implementation of reduced debit card interchange fees.

But in doing so, Senators also might have struck a blow against consumers, said Bill Hardekopf, chief executive officer of, a Web site that tracks more than 1,000 credit cards.

“This is a big loss for the banks,” said Hardekopf. “This cap on interchange fees will significantly cut banks’ revenue. Traditionally, when these revenue cuts occur, banks find new fees and charges to levy on the consumer to make up for the loss in revenue. Since it is unlikely that retailers will pass on the savings to consumers, this regulation could hurt consumers. The only real winners appear to be the retailers.”

Possible Unintended Consequences
The legislation would have required a delay to study the possible unintended consequences of capping the swipe fee. The cap is a new regulation under the “Durbin Amendment” to the Dodd-Frank Act regulating financial services. Dick Durbin is a Democrat Senator from Illinois.

Sixty votes were needed. Fifty-four Senators voted for the delay.

Hardekopf said the Senate’s failure to delay the cap on debit card fees is good news for retailers who have the most to gain from a lower interchange, or swipe, fee. The Federal Reserve has proposed capping the fee at a maximum of 12 cents per swipe. Banks currently charge 1 percent to 2 percent, or an average of 44 cents per debit card transaction.

“These bipartisan reforms will bring meaningful relief to millions of merchants and consumers,” Sandy Kennedy, president of the Retail Industry Leaders Association, said in a statement after the June 8 vote. “With this distraction now behind us, retailers await the Federal Reserve’s final rules so they can begin implementing these reforms and saving consumers money.”

The caps are scheduled to take effect July 21.

‘Dark Day for Banks’
Banks lobbied hard against the fee caps because of the expected revenue loss.

“The American Bankers Association, along with the thousands of community banks we represent, is deeply disappointed with the outcome of today’s Senate vote.  Failure to approve the amendment . . . over the Durbin debit interchange amendment marks a dark day for every bank that issues debit cards and for consumers that have come to rely on them,” said Frank Keating, chief executive and president of the American Bankers Association, in a statement.

“The Senate has essentially said it is fair for one industry to reap what another has sown, and American consumers will now have to pay more for basic banking services, while big-box retailers go off and count their unjustified profits,” Keating said. “Community banks – the backbone of local communities – will suffer the most.”

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Finance, Insurance & Real Estate News.