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Senate Rejects Delay of Swipe Fee Reform

June 9, 2011 - by Donny Shaw

The banking industry lost a vote on Capitol Hill yesterday for what seems like the first time since the first TARP attempt was rejected in 2008. The question was if the Federal Reserve’s new rules limiting how much banks can charge retailers for debit transactions, as mandated by last year’s financial regulatory overhaul bill, should go into effect this summer as scheduled or be delayed for a year, giving banks more time to lobby against it. In the end, a majority of the Senate voted in favor of the delay (54-45) but it wasn’t enough to overcome a procedural hurdle and it was ultimately rejected.

The bank lobby is the most powerful corporate force on the Hill. According to the Center for Responsive Politics, they gave $18.8 million to federal candidates in the 2010 election, and they spent an additional $55 million on lobbying Congress in the same year. The money they’ve spent on influencing Congress does seem to have helped them a bit on this vote. Running the money data through’s contributions-by-vote tool reveals that senators who supported the debit fee cap delay have taken 62% more money from the banking sector on average this cycle ($198,292) than those who voted against it ($122,352).

In the end, though, the evidence against delaying the fee caps was just too strong. According to a 2006 report from the Federal Reserve, debit fees in the U.S. are among the highest, if not the highest, in the world, “a difference that shouldn’t exist given the large economies of scale in this country,” they note. The National Retail Federation estimates that the fees, which are passed onto consumers in the form of higher prices, cost the average American household about $427 a year. Furthermore, studies have found that the current fee system is regressive because most merchants do not have separate debit/credit and cash prices, and credit/debit spending is positively correlated with higher incomes. “On average, each cash-using household pays $151 to card-using households and each card-using household receives $1,482 from cash users every year,” the Boston Fed concluded last year.

The delay was offered by Sen. Jon Tester [D, MT] as an amendment to the Economic Development Revitalization Act of 2011. It is just one of dozens of controversial, non-germane amendments that have been submitted to the bill.

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