The Wall Street Journal
By: Victoria Mcgrane & Maya Jackson Randall
June 9, 2011
The Senate rebuffed the most significant attempt so far to roll back the Dodd-Frank financial-overhaul law, in a blow to banks and credit-card companies that had fought against new debit-card rules that they say will cost them billions of dollars in annual revenue.
The Senate amendment to Dodd-Frank would have delayed rules that limit the amount banks can charge merchants for processing debit-card payments. The defeat of the provision, which had sparked a pitched lobbying battle involving the U.S.'s largest financial companies, retailers and consumer groups, was a major loss for banks and credit-card companies, which saw their stocks fall sharply after the vote, and could chill other campaigns to change provisions in the legislation.
The Wednesday vote strengthened the conviction held by many in Washington that changing Dodd-Frank will be next to impossible as long as Democrats control the Senate. House Republicans have teed up several bills that would roll back major provisions of the law, including several bills to weaken the independence of the new Consumer Financial Protection Bureau, but critics say they are most likely dead on arrival in the Senate.
Even though it focused on a once-obscure corner of the financial world, the swipe-fee provision had become a prime focus of the battle over the future of the Dodd-Frank overhaul, because it touched both banks and consumers directly.
The debit-fee measure had made more progress in Congress than any other attempt to alter provisions of Dodd-Frank and had garnered bipartisan support, yet still failed to win the 60 votes needed to hurdle the threat of a filibuster and secure Senate passage.
Senators defeated, by a 54-to-45 vote the amendment offered by Sens. Jon Tester (D., Mont.) and Bob Corker (R., Tenn.) that would have delayed by six months to a year a controversial piece of the Dodd-Frank financial law that limits the "swipe fees" banks collect from retailers each time a consumer uses a debit card at the register.
"Despite earning a majority of votes, the Senate today missed an opportunity to stand up for consumers, small businesses and community banks in rural America," Mr. Tester said.
The central bank issued a draft proposal in December, capping the debit-card fees at 12 cents a transaction for large banks, down from the current average of 44 cents, but is widely expected to issue a less restrictive final rule. The rule as currently proposed would drain $15.2 billion a year in revenue from the industry, according to an analysis by R.K. Hammer, a credit-card consulting firm in Thousand Oaks, Calif. The total cost to banks will depend on the final rule.
The vote means that the Fed will proceed with writing the debit-fee rule as scheduled, and it will take effect July 21. Banks and credit unions have warned that the loss of fee debit-fee revenue could force them to raise fees on other bank services, hurting consumers.
The banks' loss was a major victory for the U.S. retail industry, which pushed for the fee-cap provision added to Dodd-Frank by Senate Democrat's No. 2 Richard Durbin of Illinois. Retailers contend that the current debit-card fee structure isn't competitive and that they forced to charge consumers higher prices because banks are gouging them on swipe fees.
Mr. Durbin called the Tester proposal to delay the fee limits "a big-bank windfall" during a floor speech before the vote. "It would give them a free pass to continue their anticompetitive practices for at least another year."
Mr. Tester says his measure, however, had been driven entirely by complaints from small banks and credit unions, which technically are excluded from the debit-card caps. These smaller institutions say market forces will force them to lower their fees to match the cap imposed on their larger competitors. Critics warned that small banks were far less able to make up lost revenue than their big-bank rivals, and some could be forced out of business altogether.
Shares of card companies Visa Inc. and MasterCard Inc. declined after the Tester amendment failed, with Visa down 3.9% to $76.72, while MasterCard fell 1.5% to $270. While the card companies don't actually collect swipe fees themselves, the rules would loosen their control over the process and allow merchants to choose rival payment networks. Some analysts say banks will try to pass on some of their lost revenue by reducing what they pay the credit-card networks.
MasterCard said that it was disappointed, saying that the Senate "missed an opportunity to address the unintended consequences" of the legislation."
"We look to the Federal Reserve to continue its careful review of the proposed debit interchange cap to a level that actually considers all the costs associated with facilitating debit transactions," the Purchase, N.Y.-based company, said in a statement.
But the fact that the issue appears settled for now could actually provide some relief to the financial industry, some analysts said. The vote results "could ironically be a fine outcome for [Visa and MasterCard] stocks [which are] in need of certainty sooner rather than later," wrote Tien-tsin Huang, an analyst at J.P. Morgan Chase & Co., in a note to clients.
Financial industry lobbyists vowed to keep fighting. "We will not give up on this issue," said Camden Fine, president of the Independent Community Bankers of America, a trade group for small banks.
Wednesday's vote, however, may have been the banks' one chance. Mr. Tester, who originally sought a two-year delay of the Fed rule, scaled back his amendment multiple times to try and win the 60 votes he needed for victory and still fell short.
Senators who had sided with Mr. Durbin last year were reluctant to switch sides, both because they didn't want voters back home to think they had flip-flopped or backed Wall Street, lawmakers and lobbyists said. Others didn't want to be forced again to pick between generous campaign donors--the banking industry and the retailers.
"Senators are not going to be anxious to revisit this issue again," said Brian Gardner, a Washington analyst for Keefe, Bruyette & Woods.
"I've got other fish to fry and I've pretty much cooked this one," said Mr. Corker when asked if there could be further Senate action after the Fed issues its rule. "This was our best chance," he added.
The financial industry seems to be turning to Plan B: urging the Fed to revamp its plan to limit the debit-card fees known as swipe fees or interchange fees.
"It is within the Fed's power to mitigate the disastrous consequences that are sure to come from this policy initiative," said American Bankers Association President Frank Keating. "We urge the Fed to take all necessary action to do so."
--Robin Sidel contributed to this article.