Tester Drops Interchange Fee Delay Demand to 15 months

WASHINGTON — Although Senate leaders have confirmed they will allow a floor vote soon on delaying interchange fee restrictions, the timing, outcome and vehicle for suspending the proposed cap are still anyone's guesses.

Sen. Jon Tester, D-Mont., made a play on Wednesday to help shore up additional support for his legislation, which would delay the restrictions, due to take effect July 21, so policymakers could study them further.

In a speech on the Senate floor, Tester said he would shorten the proposed delay to 15 months from two years in an attempt to secure the 60 votes necessary to ensure passage.

"I'm not asking to repeal this provision," Tester said. "I'm asking us to do our homework in this body."

Tester called the 15-month proposed delay the "bare minimum" needed to study the consequences of the fee limit. The bid may be enough to push senators on the fence to vote for the bill. As of Wednesday, most observers had said Tester was two or three votes shy.

But several factors remain unclear. While Senate Majority Leader Harry Reid said publicly this week that the chamber would consider the Tester bill, it is not clear when that will be or what vehicle the legislation will be attached to.

While focus has turned to a reauthorization for provisions of the Patriot Act as a possible vehicle for the delay, observers agree that would bring complications.

"For all I know, no decision has been made whatsoever except that [Tester] will get a vote," said Brian Gardner, a political analyst at Keefe, Bruyette & Woods Inc. "'If' has been answered. 'When' has not been answered."

The proposed delay comes as the Federal Reserve Board continues to develop its final rule to curb the debit swipe fees banks charge to merchants. Under an amendment to the Dodd-Frank Act from Sen. Richard Durbin, D-Ill., the Fed must ensure debit interchange fees charged by banks with more than $10 billion in assets are "reasonable and proportional" to processing costs. In December, the central bank issued a proposal that would cap such fees at 12 cents.

But since then, regulators and banks have insisted the $10 billion threshold will not work, and the market will force community banks to face the same restrictions and restraints on revenue. The most dire warning arguably came last week at a hearing when Fed Chairman Ben Bernanke said some community banks could even fail as a result.

Tester noted such comments in his speech, citing support for a delay from state and federal regulators.

"All the regulators at the state and national level … are not convinced that the rules are going to work as it was intended," said Tester.

Industry representatives said the extent of regulators' warnings has likely given pause to senators who supported the original Durbin measure.

"When Chairman Bernanke, in a much clearer fashion than he has, said the small-bank exemption won't work — that there is good reason to be concerned and it could result in small banks failing — that reinforces the point to members and leads many to reconsider their vote," said Ken Clayton, senior vice president and chief counsel for the American Bankers Association.

But with the election season approaching and a dwindling crop of bills to which Tester's measure could be added, time is not on the industry's side. Among the possibilities for combining the proposal with other legislation, joining it with a reauthorization of Patriot Act measures has emerged as a top option.

Gardner said the Patriot Act has appeared more appealing than other targets such as broader energy legislation. But he noted that the clock is ticking since the homeland security measures must be reauthorized by May 27.

"When you look around for must-do pieces of legislation, you come up with the Patriot Act, which is facing a deadline," Gardner said. "I've heard some people suggest that's a logical place for Tester to go. But I haven't heard anything from leadership that that in fact will be where he gets his vote."

Jason Kratovil, vice president of congressional relations for the Independent Community Bankers of America, agreed that the strategy has obstacles.

"It's going to require some significant agreements among Senate leadership in both parties to find a way to get that to happen. A whole lot of stars have to align for this to happen, really on any vehicle," Kratovil said.

"While many in our industry and on our side are maybe hoping for the Patriot Act, because it's considered one of the very few must-pass things that the Senate's going to take up anytime in the near future … it's a real uphill battle, both politically and procedurally."

Even a spokeswoman for Tester said in an email to reporters Wednesday, "It is still unclear when/where there will be a vote."

Merchants groups are not convinced floor action is guaranteed.

"We're going forward to prepare but I'm not sure if there is going to be a vote and if there is, when it would be," said Douglas Kantor, a counsel to the Merchants Payments Coalition. "There is a lot of talk about this issue. Whether that means there is a vote or not is entirely unclear."

Meanwhile, most observers believe the Montana senator is still a handful of votes shy of the 60 needed to avert a filibuster, although some predicted that could change by dropping the delay to 15 months.

Still, Gardner said a vote on Tester's bill would likely transcend party lines, making an outcome difficult to predict, since supporters of the banking and retail industries tend to be on both sides of the aisle.

"This is one of those one-off issues where you can't use the usual markers, the usual telltale signs," he said.

"I think Tester is a couple of votes short, and I don't think the fence-sitters are going to jump off the fence until there's an actual vote scheduled."