Interchange Fees Forum

The Senate is expected to debate and vote on a measure to delay the federal cap on fees that banks and credit unions charge merchants for purchases made with debit cards.

Although credit cards extend credit for purchases, debit cards directly deduct payments from a person’s checking account.

The fees, which average 45 cents, are invisible to most consumers. But analysts say the outcome will affect consumer finances.

The issue stems from an amendment that Senate Majority Whip Richard Durbin, D-Ill., submitted last year for the Dodd-Frank financial reform law. The Durbin amendment required the Federal Reserve Board to regulate the fee that banks charge on debit card transactions. The Fed set a cap of 12 cents on debit card transactions on financial institutions with more than $10 billion in assets.

Chief executives of small banks and credit unions say that competition will force them to also drop to the 12-cent cap. Otherwise, they fear retailers will stop accepting their debit cards.

Financial institutions say they oppose the 12-cent fee because it will eat into their profits and force them to charge higher fees for other customer services.

Financial institution leaders now hope that a bill sponsored by Sen. Jon Tester, D-Mont., will give them a two-year reprieve from the July deadline for the fee cap.

Tester’s measure, the Debit Interchange Fee Study Act, calls for a study on the effects the Durbin amendment would have on consumers and businesses.

“We’re very hopeful that this will get action in the Senate soon,” Nevada Federal Credit Union Chief Executive Officer Brad Beal said.

Gary Kishner, a spokesman for Chase Bank, expressed similar sentiments.

Bryan Wachter, a spokesman for the Retail Association of Nevada, said retailers oppose Tester’s bill but had no further comment.

Senate Majority Leader Harry Reid, D-Nev., said he understands the importance of the issue and will continue working with Tester and Durbin to resolve the issue, a source close to Reid said.

Sen. John Ensign, R-Nev., is undecided on the issue, a source close to him said.

Martin Lobel, a Washington, D.C., lobbyist and former legislative aide to the late Sen. William Proxmire, D-Wis., said, “There’s a lot of lobbyists making a lot of money on both sides of the issue. So I don’t know which way it’s going to go.”

The question, Lobel said, is whether banks and retailers are “going to rip off the consumer.”

During a recent conference, JPMorgan Chase Chairman and Chief Executive Officer Jamie Dimon criticized the way Congress adopted the interchange fee measure.

“The Durbin amendment was passed in the middle of the night with no facts, no analysis and Congress had to vote on it, and it had nothing to do with the crisis,” Dimon said.

In a public letter to Dimon, Durbin said the banking industry “is used to getting its way with many members of Congress and with your regulators.”

Durbin said giant card issuers Visa and MasterCard are using a “system of price-fixing” and said studies showed “that Americans pay the highest interchange fees in the world.”

Chase Bank has said it will impose new fees on bank products if the Durbin measure isn’t delayed. Many financial institutions will raise fees for other services to make up for the drop in interchange fees, Beal said.

“It is a huge cut to revenues,” Beal said.

He estimated that it will cut interchange fee revenues at Nevada Federal to $2 million yearly, down from $5.8 million.

The $2 million estimate will not cover the cost of the fees that Nevada Federal pays a third-party firm to process member debit card transactions, not counting other credit union debit card expenses.

“The consumer will ultimately bear this enormous cost,” he said.

While retailers pay a fee for debit card transactions, these sales are less expensive than processing cash or a check, said Stan Wilmoth, chief executive officer of Reno-based Heritage Bank. Wilmoth is co-chairman of the Nevada Bankers Association’s legislative committee.

The retailer gets immediate payment and the financial institutions assume risks that the account has insufficient funds for the payment or that the transaction was fraudulent, Wilmoth said.

“We’re taking 100 percent of the risk,” Wilmoth said. “Once the debit card is swiped and ready to go, it’s the bank’s problem, not theirs.”