Bank Sector Can Finally Lower Its Shield After Durbin Ruling

For U.S. banks, the days of playing defense with respect to billions of dollars they collect from debit card swipes may finally be over.

Retailers have kept the financial industry on its back foot for the last five years — first by convincing Congress to enact a price cap on debit swipe fees, and later by arguing in court that the Federal Reserve Board's interpretation of the cap, which is named after its sponsor, Illinois Sen. Richard Durbin, was too bank-friendly.

But on Tuesday the U.S. Supreme Court ended the merchants' legal case, giving banks and credit unions the opportunity finally to seize the initiative. That doesn't mean the Durbin Amendment will be repealed or even pared back, but it probably does lessen the chances of further incursions by the retail industry.

"The best way to prevent Durbin from getting worse is to go on the offense and try to repeal it," said Jaret Seiberg, an analyst at Guggenheim Partners. "So I wouldn't be surprised to see the banking industry come out swinging."

Richard Hunt, president of the Consumer Bankers Association, said Tuesday that there are several leaders on Capitol Hill who want to repeal the Durbin Amendment. "We'll huddle with them," he said.

In Congress, however, there appears to be little appetite for revisiting a fight that forces lawmakers to choose sides between two large, influential industries. In this regard, the silence Tuesday from Capitol Hill was telling.

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, has been one of the loudest critics of the swipe fee cap. In 2012, he said, "I can tell you it's one of my top priorities in life to kill the Durbin Amendment." But on Tuesday, a spokesman for Hensarling did not respond to a request for comment on the Supreme Court's decision.

Another ally of banks in their fight with retailers, Senate Banking Committee Chairman Richard Shelby, R-Ala., also declined to weigh in.

Industry analysts said Tuesday they do not foresee Congress wading back into the debate over interchange fees. Since the passage of the Durbin Amendment, which applies only to fees charged on debit cards, retailers have pushed unsuccessfully for similar restrictions on credit card fees.

"We do not believe that this Congress has any interest whatsoever in reexamining the debit interchange debate or expanding the conversation to credit interchange fees," analysts at Compass Point Research & Trading wrote in a research note.

Bank lobbyists could ask Congress to raise the minimum asset threshold for having to comply with the Durbin amendment. (The provision currently applies to institutions with at least $10 billion in assets.)

But that type of half-measure risks splintering the banking industry, which is now united in opposition to the current law.

"If you don't have full buy-in from the banks, it's going to be even harder to overcome opposition from the merchants," Seiberg said.

The legal fight ended Tuesday when the Supreme Court refused to hear an appeal from retailers seeking to toughen restrictions on debit swipe fees. Merchants argued that the Fed's ceiling of 24 cents per transaction was too high, and that the central bank erred when it strayed from its initial proposal to cap fees at 12 cents per transaction.

The provision in question, enacted as part of the Dodd-Frank Act, ordered the Fed to write rules requiring the fees to be proportional to transaction costs. In 2013 a district court judge sided with the merchants, but an appeals court upheld the Fed rule last year.

The reactions Tuesday by financial trade groups focused on what they contend are harmful effects of the Durbin Amendment. The theory behind the legislation was that retailers would pass their savings on to consumers, but bankers say that hasn't happened.

"Despite the merchants' promises, there is zero evidence that they have lowered prices as a result of the Fed's rule," Paul Saltzman, president of The Clearing House Association, which represents large banks, said in a news release.

Retailers disputed that claim. "The results were that consumers saved billions of dollars," said Douglas Kantor, a lawyer who represented retail trade groups in the suit, "and none of the bad things that bankers argued were going to happen actually happened."

Despite a high court decision favorable to banks and credit unions, the issue of swipe fees is not going away for either the financial or retail industry, though it will likely evolve as technology changes.

With more and more consumers expected to start making payments with their phones, some of the nation's largest retailers are hoping to pay less in swipe fees by building their own mobile payment system, known as CurrentC. Meanwhile, many banks have hitched their wagon to Apple Pay in an effort to preserve as much swipe fee revenue as possible.

Joe Adler contributed to this report.