For the past year, a wide and expensive lobbying fight in Washington has pitted Wall Street banks against big retailers, and fattened the wallets of lobbyists up and down K Street. The final battle (for now, anyhow) will take place on the Senate floor this afternoon when an amendment by Senator Jon Tester of Montana comes up for a vote.
This fierce debate is over the “swipe fees” that banks charge retailers when a customer uses a debit or credit card at their store. During the Dodd-Frank financial reform debate last year, Senator Dick Durbin successfully passed a bill requiring the Federal Reserve to limit these fees, and the Fed’s rules go into effect on July 21. Tester’s amendment would delay that implementation by twelve months.
There’s a lot at stake for Wall Street banks in this fight—they rake in $1.35 billion in swipe fees every month, according to the Nilson Report. More than half goes to ten large megabanks that include Chase, Wells Fargo and Bank of America.
America has the highest average swipe fees in the world, at 44 cents per transaction. Durbin’s bill required the Federal Reserve to come up with a swipe-fee cap based on what it actually costs banks to perform those transactions. The Fed studied that question and came back with a pretty amazing finding in December: fair “swipe fees” should average about 12 cents, not 44. It will enforce that cap next month if Tester’s amendment fails.
With $16 billion per year in swipe fees about to be reduced by nearly three-quarters, big banks have gone all-out to stop the changes. In just the first quarter of this year, the bank-funded Electronic Payments Coalition has given $2 million to members of Congress in an attempt to derail the bill. Then there’s the money they’ve spent hiring lobbyists—118 ex–government officials and staffers alone—along with flashy media campaigns.
Naturally, however, retailers are just as determined to stop Tester’s amendment, so the billions they pay each year in swipe fees can be dramatically reduced. Major retailers like Walmart, Home Depot, Target and others have spent millions of their own in contributions, and hired 124 former government officials and staffers to fight their battle.