WASHINGTON — Merchants triumphed over bankers in a battle for billions Wednesday as the Senate voted to let the Federal Reserve curb the fees that stores pay financial institutions when a customer swipes a debit card. It was murkier, however, whether the nation’s consumers were winners or losers.
As a result of the roll call, the Fed will be allowed to issue final rules on July 21 trimming the average 44 cents that banks charge for each debit card transaction. That fee, typically 1 to 2 percent of each purchase, produces $16 billion in annual revenue for banks and credit card companies, the Fed estimates.
The central bank has proposed capping the so-called interchange fee at 12 cents, though the final plan could change slightly.
Victorious merchants said the lowered fees should let them drop prices, banks said they could be forced to boost charges for things like checking accounts to make up for lost earnings and each side challenged the other’s claims. Consumer groups were not a united front, either: While the consumer group U.S. PIRG said consumers would benefit, the Consumer Federation of America took no formal stance but said it was concerned about what both industries might do.
In Wednesday’s vote, senators trying to thwart the Fed’s rules needed 60 votes to prevail but fell six votes short, 54-45. That delivered a victory for Sen. Richard Durbin, D-Ill., the Senate’s No. 2 Democrat, who muscled the provision into last year’s financial overhaul law requiring the Fed’s action.
Durbin’s support on Wednesday represented an erosion from last year, when the Senate included Durbin’s provision in the overhaul bill on a 64-33 vote. Much of the drop was explained by a dozen senators — including nine Democrats — who switched from backing Durbin in 2010 to voting to delay the Fed action on Wednesday.
Of the 12, just four are seeking re-election next year: Sens. Kirsten Gillibrand, D-N.Y.; Ben Nelson, D-Neb.; Debbie Stabenow, D-Mich.; and Roger Wicker, R-Miss.
Thirty-five Republicans joined 19 Democrats in backing the unsuccessful effort to block the Fed. Thirty-two Democrats, 12 Republicans and an independent voted to let the central bank move ahead, while Sen. Joseph Lieberman, I-Conn., did not vote.
Camden R. Fine, president of the Independent Community Bankers of America, challenged that, saying the Senate vote would mean that “consumers of lower socio-economic status will get hammered” because bank fees would rise.
“Where do people think banks get the money to subsidize these products” like free checking accounts, he said. He also challenged assertions that stores would pass the savings from lower fees to customers.
“Does anybody not smoking dope believe merchants will pass some big windfall to consumers?” he said, adding later, “I mean, what are they going to cut prices by, a penny?”
Merchants, however, argue that they will be forced to lower prices to reflect the curbed debit card fees.
“The retail industry is the most competitive business environment going today,” said Brian Dodge, spokesman for the Retail Industry Leaders Association, which represents many large merchants like Target and Home Depot. “There is no doubt competition would drive any interchange savings out of the system, which would be reflected by lower prices.”