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Congress to clamp down on debit card interchange fees

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NEW YORK — Retailers scored a victory this week when Congress agreed to include new measures to regulate debit card interchange fees in pending financial reform legislation.

Retailers scored a victory this week when Congress agreed to include new measures to regulate debit card interchange fees in pending financial reform legislation.

Assistant Senate Majority Leader Richard Durbin (D., Ill.) said Monday that an accord has been reached with key conferees on the Wall Street reform bill regarding his interchange fee amendment approved by the Senate in May. He stated that the agreement makes "minor, clarifying changes" to the language in his amendment and responds to concerns raised by state governments regarding their use of prepaid and debit card distribution of government benefits.

The new language will be offered by the House to the Senate during the conference negotiations on the financial reform package this week, and it’s expected to be debated and eventually accepted by the conference committee and become the final language regarding interchange fees, according to Durbin. The conference committee hopes to finish its work on the bill this week, and the House and Senate are expected to pass the final legislation before July 4, he added.

Durbin said he worked closely with committee chairman Sen. Christopher Dodd (D., Conn.) and Rep. Barney Frank (D., Mass.) as well as Rep. Gregory Meeks (D., N.Y.), Rep. Carolyn Maloney (D., N.Y.), Rep. Luis Gutierrez (D., Ill.) and Rep. Peter Welch (D., Vt.) on the changes.

"I’m pleased that we were able to reach an agreement which makes modifications which strengthen consumer protections and bring competition to a market where there is none," Durbin said in a statement. "We addressed specific concerns of states serving the unemployed and firms serving the unbanked. This was a good faith effort with House conferees to face legitimate issues and resolve them fairly without surrendering our goals of bringing fairness to interchange fees and common sense regulation to the credit card industry."

Durbin’s amendment called for the Federal Reserve to set regulations that would result in interchange fees for debit cards that are "reasonable and proportional" to banks’ actual costs for processing the transactions. Also, the amendment sought to make it easier for merchants to offer discounts or other benefits for customers who don’t use credit cards and to set minimum purchase amounts for credit cards.

Key changes to the amendment under the agreement reached Monday include the following:

• Card networks cannot prevent merchants from offering a discount for one form of payment vs. another (cash versus check versus credit versus debit), and the discounts cannot differentiate between card issuers or card networks and must be offered to all prospective buyers and be disclosed clearly and conspicuously.

• The Fed will issue rules preventing card networks from requiring that their debit cards can only be used on one debit card network, which will ensure that merchants will have the choice of at least two networks on which to run debit transactions.

• Reloadable prepaid debit cards, often used by consumers lacking bank accounts, as well as government program debit and prepaid cards are exempted from interchange regulation.

• The Fed cannot regulate network fees — that is, the fees that Visa and MasterCard charge banks — except to ensure that the fees are not used to circumvent interchange fee regulation.

• The Fed can adjust the interchange fee rate received by a particular card-issuing bank if the bank demonstrates that the adjustment is reasonably necessary to cover fraud prevention costs incurred by the bank.

• The minimum transaction thresholds for using a credit card may not exceed $10, with authority given to the Fed to increase that dollar amount.

According to the National Retail Federation, interchange fees charged by card-issuing banks average between 1% and 2% of the transaction for debit cards and 2% or more for credit cards. Overall swipe fees charged to retailers and other businesses by Visa and MasterCard banks totaled $48 billion in 2008, with debit swipe fees alone amounting to about $20 billion of that total, NRF reported.

Last Friday, NRF launched a radio campaign urging the House and Senate to keep the interchange fee amendment in the financial reform legislation.

The 60-second spots, NRF said, depict a husband and wife reading a newspaper article about "another bailout of the banking industry," noting that swipe fees cost consumers more than $400 a year. The commercials urge listeners to contact their members of Congress and urge them to "fix the debit card swipe fee" and "stop the bailout."

NRF said the ads are running in the home districts of key members of the House-Senate conference committee currently negotiating a final version of the Restoring American Financial Stability Act reform legislation. According to the federation, the panel is expected to complete its work this week, followed by final votes in the House and Senate next week in order to get the bill on President Obama’s desk by July 4.


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