Senators failed yesterday to postpone rules that would limit fees on debit card swipes to 12 cents per transaction, down from an average of 44 cents.
The action is victory for retailers but a setback to the banking industry, up in arms over the fee cap resulting from the sweeping Dodd-Frank Wall Street Reform and Consumer Protection Act. The limits, set to go into effect on July 21st, will cost banks an estimated $12 billion a year.
“American consumers will now have to pay more for basic banking services, while big-box retailers go off and count their unjustified profits,” said Frank Keating, president of the American Banks Association. “Community banks – the backbone of local communities - will suffer the most.”
Banks will be forced to make up lost revenue by raising fees and account minimums, and eliminating free checking and debit card reward programs, say industry spokesmen. The caps may ultimately put some banks out of business and increase the numbers of “unbanked” citizens who cannot afford traditional banking services.
Banking leaders vow to continue fighting the rules through petitions to the Federal Reserve and legal appeals. According to Bloomberg, the U.S. 8th Circuit Court of Appeals in St. Louis is scheduled to hear a case filed by TCF Financial Corp. of Wayzata, MN. The bank is appealing a lower court ruling that denied a stay on the fee limits.
Consumer advocates and retailers have lobbied extensively for the cap on fees, which are typically passed along to shoppers. Banks now charge 1 percent to 2 percent on each transaction and justify the fees as necessary to cover the costs of insuring debit cards, and maintaining machinery and software.
“We applaud the U.S. Senate for standing up for Main Street and protecting reforms that will help fix the broken debit market,” said Sandy Kennedy, president of the Retail Industry Leaders Association. “These bipartisan reforms will bring meaningful relief to millions of merchants and consumers at this critical time.”
The bill before the Senate on Wednesday would have postponed the implementation of the fees for 12 months. The proposal won the majority of votes (54 to 45) but fell short of the 60 needed for approval, said Bloomberg.