WASHINGTON — The banking industry was caught off guard this week as Sen. Dick Durbin, fresh off a victory to add interchange regulation to the regulatory reform bill, mounted another legislative effort on the topic that appears to be gaining momentum.
The Illinois Democrat added an amendment to an appropriations bill that would require credit card payments accepted at government agencies to be given the lowest available market interchange rates, which typically can only be negotiated by large supermarket chains.
The provision was a potent reminder that Durbin and others are going to continue pushing the issue after their success in putting a measure into the regulatory reform legislation enacted last week that requires the Federal Reserve Board to regulate debit card interchange fees.
Though the latest proposal targeted a narrow slice of credit transactions, many saw it as just an opening salvo.
"I don't see why there would be a natural reason to stop there," said Raj Date, the chairman and executive director of the Cambridge Winter Center for Financial Institutions Policy. "If you believed that the debit interchange component of the broader regulatory reform was a good idea, I am pretty sure that those arguments would logically extend to credit, too. … This issue has always seemed like a brawl between two very big, powerful entrenched interests, the retailers and the banks, and it just so happens that we are at a time when the merchants have been better able to make their case."
The latest Durbin interchange fee provision was approved Tuesday by the Senate Appropriations Committee's financial services subcommittee, of which he is chairman. The provision was added to the broader fiscal year 2011 appropriations bill, which the parent committee plans to take up Thursday.
In a report this year, the Treasury Department said that reducing interchange rates on government cards could save the government $25 million to $28 million a year.
Some analysts said that such an argument is particularly compelling now, given that lawmakers, particularly Republicans, are trying to rein in spending and reduce the deficit.
"It seems sensible enough that it's likely to have some momentum, and I'm not sure that it's going to be possible to reverse," said Chris Low, the chief economist at First Horizon National Corp.'s FTN Financial.
But other analysts said the provision could fail as the overall legislation gets bogged down in an election year. "I don't see individual appropriations bills passing this year," said Mark Calabria, the director of financial regulation studies at the Cato Institute. "It has low odds. Not due to its substance, but more due to the outlook for appropriations."
Industry lobbyists said that Sen. Susan Collins, R-Maine, voiced concerns about the provision during the subcommittee vote on Tuesday, and they said they hope she will offer an amendment to strike out the interchange provision or replace it with a study.
A spokesman for Collins did not respond by American Banker's deadline to requests for comment.
Banking industry lobbyists were reluctant to discuss the odds of beating the provision, particularly after their loss on the issue in the regulatory reform package. But several said they were ready for Durbin to continue his fight to regulate interchange fees.
"We're deeply concerned over this continued desire to limit the ability of community banks and others to serve their community by taking away needed revenue from them," said Ken Clayton, the head of the American Bankers Association's card policy council. "It's going to affect every bank in America."
Jason Kratovil, a lobbyist for the Independent Community Bankers of America, agreed. "This language would make it even harder for community banks to provide credit cards," he said.
