Commercial Appeal - Tennessee Bankers Chafe at 'Swipe Fee' Cap for Debit Cards

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By James Dowd

If a bipartisan effort by U.S. senators proves successful -- and it appears increasingly likely that it will be -- new regulations surrounding debit card fees won't go into effect next month as originally planned.

Legislation recently signed by nine senators, including Sen. Bob Corker of Tennessee, would delay the Federal Reserve's plan for a couple years. Originally, the Fed's new rules were set to roll out on April 21 and be fully implemented by July.

Brad Barrett and Tim Amos of the Tennessee Bankers Association recently traveled to Washington to discuss the pending change to debit card interchange fees -- commonly referred to as "swipe fees" -- with members of Congress.

The TBA supports the delay.

"The laws are set to go into effect in a few weeks and be fully implemented within six months, but we think that's just too short a time frame to adjust to such a significant change," Amos said.

"We're asking the Fed to do a lot more study on the impact of this legislation instead of rushing into it. There's still too much uncertainty about how this will ultimately affect consumers, banking institutions and merchants."

Added Barrett, "We hope for better study and better legislation that will be more equitable to community banks and more beneficial to consumers."

After last summer's financial reform legislation, lending institutions started looking for ways to make up for anticipated revenue losses linked to increased regulation of interchange fees, or the amounts banks were able to charge for transactions involving debit cards and overdraft protection programs

That's because the Fed's plan would place a ceiling on debit card fees, or the amounts that merchants pay banks in order to conduct those transactions.

Currently, those fees range from 1 to 2 percent -- or an average of 44 cents -- per transaction. The Fed proposal would cap the amount that banks receive at 12 cents per transaction.

Memphis business consultant Brian Edwards, who works as a specialist in credit card processing, contends that despite the Fed's intentions, consumers are still going to pay.

"Already you have some of the bigger banks eliminating or drastically reducing their free checking services and starting to charge fees to make up for revenue lost because of caps on interchange fees," Edwards said.

"It's certainly not likely that consumers will see the prices of goods and services drop; there'll just be a shift in revenue streams. Consumers who use debit cards are going to end up paying for that service, one way or another. It's just that simple."

And that's an objection leveled by groups such as the NAACP and the U.S. Hispanic Chamber of Commerce. The organizations say that capping fees may cause banks to impose higher fees for services, thus making it more difficult for lower-income families to maintain banking accounts.

On the other hand, groups such as the National Retail Federation have countered that the delay will only cost merchants more and also, in the long run, consumers.

Mallory Duncan, a senior vice president and general counsel for the retail federation, characterized the effort to delay the Fed regulations as favoring "Wall Street banks and price-fixing card companies over Main Street merchants and their customers."

In a written statement, Duncan insists retailers stood ready to pass savings on lower swipe fees to consumers, "but we can't do that if Congress lets bankers stand in the way."

Compelling arguments on both sides of the issue are proving challenging to local small-business owners, the leader of a Memphis professional organization said.

Eric Meyers, chairman of the local Small Business Chamber, said it's an issue merchants are closely following and trying to figure out.

"Like many others, I'm trying to find out as much as I can about it and how it might affect my business, one way or another," Meyers said.

"There's a lot of information to process, and I believe most small-business owners are wondering what the ultimate effect on them will be. For now, there seem to be a lot of unanswered questions."

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