WASHINGTON — In a nail-biting conclusion after weeks of fierce lobbying by bankers and retailers, the Senate defeated a bill Wednesday that would have delayed the Federal Reserve Board's proposal to cap interchange fees for debit cards.
The bill by Sens. Jon Tester, D-Mont., and Bob Corker, R-Tenn., won only 54 votes — 6 shy of the necessary 60 — while opponents rallied 45 members to their cause. The bill would have forced the Fed to suspend its current rulemaking process and produce a study in six months of the impact of interchange rules. The agency would have had six more months to rework the plan to ensure it did not hurt small banks.
But with the defeat, which came after the banking industry and merchants waged a heated lobbying fight over the bill, the Fed must now proceed with its plan, which must be finalized before July 21. Under a proposal issued in December, the central bank would have capped fees at 12 cents per debit-card transaction — far below the industry average of 44 cents. Many industry representatives are hoping the Fed will raise the cap to 20 cents, but the central bank has not said how it will proceed.
The vote came after more than a day of on-and-off debate on the Senate floor over the issue, with Sen. Richard Durbin, the interchange provision's author, arguing the latest Tester and Corker language was a gift for the biggest banks, and Tester contending it was necessary to save smaller institutions.
Under the Dodd-Frank bill, banks with less than $10 billion of assets were exempted from the fee cap, but regulators, including Fed Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair, had said that was unlikely to work.
"Everyone agrees that if the Fed's rules go into effect, it's very likely that small banks and credit unions will suffer," Tester said.
But Durbin, one of the most powerful lawmakers in the Senate, was ultimately able to hold the needed votes to deny Tester a victory. During the vote, the Illinois Democrat denied the fee cap will hurt small banks and mocked concerns it will hurt profits at larger institutions. Durbin noted that interchange fees are zero in Canada.
"We have people on the floor begging us to show some sympathy … and they charge nothing in Canada?" Durbin said.
Anticipating victory, Durbin said the Fed would issue its final rule "within a matter of days."
Under Dodd-Frank, the Fed is required to ensure debit swipe fees are "reasonable and proportional" with the cost of processing payments.
Tester and Corker's bill would have required regulators to study the impact of the fee provisions on small issuers. It also would have required the Fed to consider both "fixed and incremental" costs related to payment-processing in setting the cap. Presumably, that would have allowed the central bank to set the fee limit considerably higher.
