Washington Banks and retail organizations squared off Thursday as the Senate sought to make it possible for merchants to offer customers discounts if they use cash, checks or debit cards.
Both sides were heavily lobbying a measure by Sen. Richard Durbin, D-Ill., that would force credit card companies to charge businesses less for debit card transactions than credit card payments.
Durbin, the second ranking Democratic leader in the Senate, wanted the proposal considered as an addition to a package of new financial rules the Senate is considering to ward off a repeat of the financial crisis.
Under current practice, a business that accepts major credit cards signs agreements with the card companies to pay a percentage of each transaction, usually about 2 to 3 percent. But credit card charges cost more to process than swipes with a debit card.
The change would represent the most direct and tangible consumer benefit of the regulatory overhaul and would amount to a triumph for Durbin who failed to get a similar proposal attached to an overhaul of credit card regulations last year.
The issue pits the politically popular appeals of small business owners against the influence of community banks and the lobbying power of the credit card companies.
Durbin wants the Federal Reserve to ensure the fees that credit card companies charge for debit card use are proportional to the costs of processing the transaction.
Durbin’s measure requires that once merchants can pay lower fees for debit card purchases, they would be able to offer discounts to their customers based on their method of payment. To win more support, Durbin included an exception from the fee requirement for banks with assets of less than $10 billion. Durbin said even with that exception, his legislation would affect 65 percent of all card transactions in the United States.
Still, the Independent Community Bankers Association opposed the proposal, arguing large retail merchants may choose to accept only the cheaper cards offered by large banks or that small banks will be forced to accept the lower fees big banks would receive.
Retail groups countered that any reductions in fees would be passed on to consumers. Henry Armour, president and CEO of the National Association of Convenience Stores, said credit and debit card fees are the second biggest expense in his industry, behind labor costs.
“This is an issue that affects in our industry 160 million consumers a day,” Armour said.