Senate Rejects Debit Interchange Revamp Via Tester-Corker Amendment

Banks and their lobbies held high hopes for the Tester-Corker Amendment that would have overridden the swipe fee reforms mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Retailers rejoice. Should consumers follow suit?

Tester-Corker vs. Dodd-Frank

"This is a landmark victory for American consumers that will give them the break from skyrocketing swipe fees," says Matthew Shay of the National Retail Federation (NRF). Citing a still sluggish economy and a sharp increase in consumer goods and services, he underscores that keeping financial reform on track is in the best interest of both retailers and consumers.

As outlined by the SEC-published Dodd-Frank legislation, swipe free reform was part and parcel of the hotly debated fiscal recovery package. With strong bipartisan support, Democratic Senator Jon Tester took to task this clause in his "Debit Interchange Fee Study Act of 2011," which attempted to delay implementation of swipe fee reform, pending a more thorough study of its feasibility.

Needless to say, the American Bankers Association lobbied heavily in favor of the Tester-Corker amendment. "Interchange revenue helps banks fight fraud, provide low-cost banking services, and efficiently operate a payments system that is seamless and of tremendous benefit to individuals," the ABA asserted on June 7.

As the Senate eventually dismissed Sen. Tester's interchange amendment, retailers rejoiced. As it now stands, July 21, 2011 marks the day that swipe-fees are effectively capped at 12 cents per transaction.

Swipe Fee Victory Aftermath

If the ABA is to be believed, the regulation of debit interchange will lead to widely felt inefficiencies in fraud prevention and loss of cheap banking services. In the alternative, the banks more likely than not will maintain their security measures, but pass on higher charges to consumers.

The NRF asserts that each month the banks siphon off $1 billion from retailers. If the organization may be believed, the failure of the Tester-Corker amendment keeps prices low for the consumer. Financial Reform Watch reveals that the actual amount the banks charge is an averaged swipe fee of 44 cents a transaction, which does indeed translate into an annual $12 billion windfall for banks.

There is even more at stake now that has banks watching out. Their lobbies' failure to convince the Senate may result not only in financial reform on the federal level, but also in retailer choice amendments with a regional platform. Rhode Island, Maine and Minnesota are already said to be entertaining legislation that lets retailers pick which types of cards they will accept -- all based on bank fees.

In the final analysis, there is a good chance that the consumer actually loses out. Prices will likely not go down across the board by an average 32 cents -- the difference between the swipe fee cap and the current average -- while they will instead now also have to contend with reduced banking perks.

Sources

National Retail Federation: "National Retail Federation Calls Swipe Fee Vote Victory for American Consumers"
SEC: "Dodd-Frank Wall Street Reform and Consumer Protection Act"
American Bankers Association: "ABA Voices Strong Support for Tester-Corker Amendment"
Financial Reform Watch: "Banks Lose and Retailers Win -- Senate Rejects the Tester-Corker Amendment to Delay Rule Capping Debit Card Fees"