U.S. Sen. Bob Corker, R-Tenn., introduced a bill Tuesday to delay for two years a Federal Reserve plan that limits the amount banks may charge retailers when customers pay with a debit card.
The Fed's plan would limit so-called swipe fees - the amount retailers pay banks per debit card transactions- to 12 cents per swipe, down from the current average of 44 cents.
But Corker said the unintended consequences of the government action could be to limit consumer access to such cards, especially among customers with less-than-perfect credit. He said the federal action amounts to price fixing.
Retailers favor cap
Retailers argue that the current fees cut into their profits, and cause them to raise prices or go out of business. A few smaller retailers have stopped taking debit cards, or require a minimum purchase to use one.
The National Council of Chain Restaurants accused Corker and his co-sponsor, Sen. Jon Tester, D-Mont., of "defending the biggest of the big banks, which collect billions of dollars in excess fees from restaurant owners and other merchants at the expense of local businesses that are at the mercy of these financial behemoths."
They claimed the delay could cost consumers and merchants as much as $1 billion per month.
The financial fight stems from a section of the Dodd-Frank financial reform bill, called the Durbin amendment, that was passed this summer and will take effect July 21.
Corker wants a two-year extension on the rule's deadline to study the regulation and find a solution that has fewer unintended consequences, he said. He noted that the 12 cent fee covers only the actual cost of the electronic transaction itself, and doesn't take into account the overhead of running a bank and losses from fraud.
"I don't think they should set the price of pizza based on the price of dough, I don't think they should price a shirt based on the cotton and I don't think they should set the price of a newspaper based on the price of the ink," Corker said.
Community banks, many regulators and even the NAACP have also come out against the Durbin amendment.
Banks vow to spread pain
Frank Hughes, president and CEO of Cornerstone Community Bank, said the current system helps spread out the losses.
"If you make it to where there's no way they can spread the risk, if there's no fee to recover the loss, anyone who's even questionable will be denied," Hughes said. "The debit card system is efficient; it helps every party involved, so why tinker with an efficient system?"
Previous efforts by Congress to control fees imposed by banks and credit card company have been met by more fees, and the NAACP claimed in a letter to House Speaker John Boehner that the caps could force people with low incomes to drop their checking accounts in light of new charges from banks.
"This rule should be thoroughly and expeditiously reviewed prior to implementation, allowing a full and appropriate impact study to be performed to ensure that it will not raise fees," said Hilary Shelton, vice president for advocacy and policy at the NAACP.
Blake Strickland, president and CEO of the Tennessee Valley Federal Credit Union, questioned whether smaller banks would offer a service if regulators made it unprofitable.
"They've tried to assume this is what a transaction should cost, but they didn't take into account all the other costs that go into this," he said. "Basically, all of us, it would really cripple our income."
The Durbin amendment's 12 cent cap covers neither the fixed costs nor the fraud costs of doing business, according to Todd Wanner, chief financial officer of First Tennessee, which puts community banks in a precarious position.
When the costs of doing business get handed down to small banks, it could turn a "slight profit into a decent amount of charges," he said, and the bank would have to either impose spending limits, heavy fees or cut off usage completely for some.
"I could see the possibility where community banks couldn't compete and offer debit cards at all," Wanner said.
Calling the Durbin amendment "ready, fire, aim" law, Corker said that in the end, the cost of the measure would be passed onto consumers.
Larger banks like Chase and Bank of America have already floated the idea of capping debit card purchases at $50 or $100 per transaction, and Chase has began charging Wisconsin consumers $3 per month to use a debit card, and $15 per month for a basic checking account in Atlanta..
Corker's bill will only apply to debit cards, unlike previous bills in Congress that have also addressed credit card issues.