Surprise: In Fight Over Interchange, Money Not the Critical Factor

WASHINGTON – Billions of dollars were on the line in the fight over debit-card interchange fees. Banks and retailers spent millions to lobby Congress.

So for key senators, what was the decisive factor in deciding how to vote? The answer, perhaps surprisingly, does not appear to be money. At least not in an obvious way.

As American Banker readers know well, the interchange battle hinged on two key Senate votes. On May 13, 2010, retailers scored a surprise victory when the Senate approved the Durbin Amendment.

Then on June 8, 2011, the retailers successfully repelled a counterattack by the banks when the Tester Amendment fell short of the 60 votes that were needed.

In between, 12 senators – nine Democrats and three Republicans – switched sides. All 12 switched their votes from the position favored by retailers to the stance supported by banks. These senators did not flip-flop exactly – their first vote was to impose fee caps, and their second vote was to delay the implementation of caps proposed by the regulators – but they did switch sides on a high-stakes issue.

What caused the 12 senators to switch? With a huge assist from the Center for Responsive Politics, I analyzed campaign contributions from retailers and banks to the 12 vote-switchers both before and after the passage of the Durbin Amendment in May 2010.

The results show that the role of money in politics is more subtle than it is often portrayed. For the analysis, I looked at campaign contributions during two periods of time: the 13 months prior to the vote on the Durbin Amendment, and the 13 months after that vote, a period that ended a few days after the vote on the Tester Amendment.

I relied on industry categories that the Center for Responsive Politics uses to track the source of campaign contributions. The retailers included were food stores, drug stores, restaurants and bars, apparel and clothing stores, consumer electronics and computer stores, furniture and appliance stores, and department, variety and convenience stores. The financial institutions included commercial banks, savings & loans, credit unions, and credit agencies and finance companies. 

If the senators switched sides largely because of campaign contributions, you would expect to find that they got a flood of cash from the banks after their pro-retailer votes in 2010. But that’s not what happened. 

Here is what I found:

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Overall, in terms of campaign contributions to these 12 senators, the banks outspent the retailers during both periods of time. But the spending gap closed actually from $221,000 before the vote on the Durbin Amendment to $67,000 after that vote. 

And in the case of six senators –Begich, Bennet, Gillibrand, Hagan, Mikulski and Wicker – the retailers actually outspent the banks after the vote on the Durbin Amendment. And yet all six voted with the banks in 2011. 

So what actually caused the 12 senators to switch sides? Here are some possibilities: 

• Banks were no longer as politically toxic in 2011 as they were in 2010. Some senators who might have voted against the Durbin Amendment in normal circumstances may have felt compelled to support it in the aftermath of the 2008 bank bailouts. The two New York senators – Schumer and Gillibrand, both of whom frequently side with Wall Street banks – may fall into this category. 

• The Fed’s proposal went further than many anticipated. While a cap on interchange fees may have seemed like a reasonable idea when the average fee was 44 cents per transaction, the debate shifted when regulators proposed a 12-cent cap. The banks’ arguments, describing the billions of dollars in revenues they would lose, may have become more convincing at that point. 

• Retailers had a key advantage in the 2010 lobbying fight. During the mad scramble leading up to the passage of the Dodd-Frank Act, banks had many priorities. They cared a great deal about the Consumer Financial Protection Bureau, risk-retention rules, and many other provisions of the law. They had to pick their battles strategically. Retailers, on the other hand, cared only about interchange fees. But by 2011, the debit-card fees were a standalone issue, which made for a more even fight. 

• Old-fashioned horse trading. If you voted for the Durbin Amendment, but weren’t strongly committed to the retailers’ cause, it might have made sense to trade your vote on interchange fees in exchange for the support of another senator on one of your legislative priorities. 

• Schumer, who is one of the most powerful Democrats in the Senate, may have brought some votes with him. As Alexander Bolton of The Hill noted, Schumer, in his former role as the lead fund-raiser for Senate Democrats, helped four of the vote-switchers – Begich, Gillibrand, Hagan, and Webb – get elected to the Senate.

I certainly don't want to suggest that money played no role in the outcome of the interchange fee fight. Back in April, Zach Carter and Ryan Grim had a fantastic story in the Huffington Post about the lobbying battle, which was epic because so much money was at stake. But that doesn’t mean senators’ votes were on sale to the highest bidder.