WASHINGTON — House conferees reached an accord Monday with Sen. Richard Durbin, D-Ill., on a provision of the regulatory reform bill that would allow the Federal Reserve Board to regulate interchange fees on debit cards.
The agreement signaled that efforts by banks, credit unions and card companies to remove the measure had all but failed.
"Some version is probably going to be in the final legislation," said Oliver Ireland, a partner with the law firm of Morrison & Foerster. "It's in the House offer, it's in the Senate bill. I'm not sure what the process would be that would strip that out."
The interchange agreement came as House conferees prepared to give up on the creation of a stand-alone, independent consumer protection agency. Under a House proposal expected to be offered today, conferees agreed to the Senate's vision of the new regulator, which would be an autonomous unit in the Fed.
But the interchange provision drew most of the attention as Durbin unexpectedly cut a deal directly with House members of the conference committee. The agreement largely leaves Durbin's original provision intact, making some changes so that the Fed would keep authority to regulate debit interchange fees rather than having that power transition to the new consumer agency.
The deal would also let the Fed consider the cost of protecting against fraud when determining whether fees are "reasonable and proportional" — a change from the original language, which only allowed the central bank to consider "incremental" transactional costs.
The agreement would also exempt most prepaid cards under certain conditions, and all prepaid government benefit cards. Several state officials had begun to lobby against the measure in recent weeks, arguing it would cost them millions of dollars.
The deal would retain a provision that allows merchants to offer discounts for particular payment types, but clarifies that they can only do so for the type of payment, whether credit card, debit card, check or cash, not on the basis of the issuer or network.
Durbin said Monday that he was happy with the deal.
"I'm pleased that we were able to reach an agreement which makes minor changes to strengthen consumer protections and bring competition to a market where there is none," Durbin said.
With his approval, the Senate is expected to largely accept the House offer concerning the interchange provision.
Industry representatives said the agreement is not an improvement. "We oppose regulation of interchange," said Floyd Stoner, the chief lobbyist of the American Bankers Association. "We do not believe that the House's offer significantly changes anything."
But House conferees were also set to suggest other changes concerning consumer protection and mortgage provisions.
Although House Financial Services Committee Chairman Barney Frank has said he was unhappy with putting the consumer agency in the Fed, the offer would keep the Senate structure.
Instead, it would focus on widening its scope. The proposal would specifically subject payday lenders, money remitters, check cashers and private student lenders to supervision by the bureau. It would also strike a provision that would force the bureau to float its rules past prudential regulators first and either incorporate their requested changes or submit a written explanation why they had not.
The offer also sought to beef up language that allows the Office of the Comptroller of the Currency to preempt state laws. Under the Senate bill, the OCC can preempt state consumer laws on a case-by-case basis if they interfere with the business of banking. But House conferees are seeking to add an additional hurdle that would force the OCC to prove that a substantive federal consumer protection standard is in place before it can preempt state law.
The House proposal also calls for dropping a Senate provision that let regulators exempt qualified mortgages from a 5% risk-retention provision.
