The Senate rejected a move Wednesday afternoon that would have delayed for one year a cap on the fees banks charge retailers each time a consumer's debit card is swiped for a purchase, with members and lobbyists on both sides of the issue have been working overtime for their cause with one senator saying members felt "beaten up."
The vote, 54-45, was one senators were loathe to take, one that put them between what Sen. Tom Carper, D-Del., called "their two favorite children," the merchants and the community and credit union bankers.
Consumers hardly know that each time they swipe their debit card for a purchase that banks charge the retailer a hefty fee for that transaction, but it has been a major source of income for the banks for years.
The Fed, in December, devised a 12 cent cap per transaction that will take effect July 21, per the direction of a provision authored by Sen. Dick Durbin, D-Ill., in last year's financial regulatory reform law, known as the Dodd-Frank bill after its sponsors.
The Durbin amendment caught bankers off guard last year, and its powerful lobbyists mobilized immediaately to delay or defeat it. They set their sights on an amendment to an economic development bill, currently on the Senate floor, authored by Senators Jon Tester, D-Mont., and Bob Corker, R-Tenn., which sought to delay the implementation of the cap.
The Tester-Corker provision would have directed the Fed to determine the possible effect on businesses and to take into account all the costs that go into a debt card and its use.
On Wednesday, according to Reuters, Rep. Barney Frank, top Democrat on the Financial Services Committee, voiced his support for the Tester-Corker provision, but even that high-level support was not enough to push the amendment across the finish line.
The original Durbin amendment was designed to provide a carve-out for smaller banks and credit unions with holdings under $10 billion, but opponents of the provision said there could be no such assurances. Some neutral observers agreed. Both Fed Chairman Ben Bernanke and FDIC Chairwoman Sheila Bair have said they are not sure if the exemption, or "two tier system," will work.
Durbin tried to reassure the opposition Wednesday that he would "be there" if his legislation harms smaller banks, but the number two Senate Democrat did not appear to persuade his colleagues on the other side of the argument.
Populist outrage flowed from both sides, with banks playing the victim and the boogeymen at alternating moments.
Durbin, in a speech he has made countless times since his legislation passed, said the banks, in the Tester-Corker amendment, want to kill his measure "in the cradle." Durbin reminded colleagues that taxpayers bailed out the banks, and now it's time for payback.
"Let me remind those who are following this debate, the taxpayers of America were asked to stand by these banks in one of their darkest hours," Durbin said, acknowledging that the banks repaid the loan, but added, "Now they come to us and say we want you to continue this subsidy, this interchange fee subsidy, 50% of which go to the three largest banks in the United States of America. Well, I think it's time for us to say no. I think it's time to stand for consumers and small businesses across America who have no voice, no power and deserve our help in making this system fairer, more transparent and more competitive."
"Make no mistake, those unintended consequences will be felt all across rural America..For those who think it will work, there's not a regulator out there who will tell you it will," Tester, who is up for re-election in 2012, warned.