Banks Want to Raise Debit-Card Swipe Fees. Republicans Say No

(Bloomberg) -- Wal-Mart and other retailers have beat back the finance industry’s latest lobbying campaign to let banks charge stores higher fees when customers use debit cards, according to two congressional aides with direct knowledge of the matter.

House Republicans have been working on legislation to kill off key parts of the Dodd-Frank banking reform law, which imposed restrictions on Wall Street in the aftermath of the financial crisis. While banks dislike many aspects of the 2010 law, they have particular disdain for a provision known as the Durbin amendment that limits swipe fees, saying the caps have cost them billions of dollars in lost revenue.

But the fee cap is a boon for retailers, which have repeatedly told lawmakers that consumers will be hurt if it’s removed. House GOP leaders have concluded they don’t have the votes to overhaul Dodd-Frank if their bill includes a repeal of Durbin, the two aides said. The decision to leave the debit-fee cap in place likely clears the way for a full House vote on the Dodd-Frank revamp as soon as next month, the aides said.

The decision on Durbin is a victory for the retail industry, which has spent millions of dollars lobbying politicians. The issue has always been a sensitive one for lawmakers, many of whom are loath to pick sides in a fight between powerful corporations such as Wal-Mart Stores Inc. and JPMorgan Chase & Co. Members of Congress generally want cordial relations, and campaign contributions, from both industries.

$9 Billion

Debit-card fees are set by Visa Inc. and Mastercard Inc., but most of the money goes to banks. The provision that mandated the fee cap, which is named after Democratic Illinois Senator Richard Durbin, has cost lenders an estimated $9 billion, according to analysts at Goldman Sachs Group Inc.

The bill to revamp Dodd-Frank’s post-financial crisis reforms was written by House Financial Services Committee Chairman Jeb Hensarling, and included the repeal of the fee cap. Hensarling’s panel approved the legislation earlier this month, but he has faced resistance from other GOP lawmakers over the Durbin amendment. Hensarling said on Wednesday he would remove the provision.

When House Republicans held an internal vote count this week, they found that scrapping Durbin would derail Hensarling’s Financial Choice Act, said the aides who asked not to be named because the vote was private.

House Republicans are eager to move the bill forward, as removing constraints that Dodd-Frank imposed on the finance industry is a top goal that is shared by President Donald Trump. Administration officials have repeatedly blamed Dodd-Frank for curtailing lending and economic growth.

Contentious Provision

“I’ve said before that repeal of the Durbin amendment was the most contentious part of the bill among Republicans,” Hensarling said in a statement. “We won’t let this one provision hinder passage of an important-priority bill that will end bank bailouts and help renew economic growth for all Americans.”

While other aspects of Dodd-Frank get more attention -- such as the Volcker Rule restriction on banks’ trading -- repealing Durbin has been one of the finance industry’s top priorities in Washington for years. The American Bankers Association, a lobbying group, pledged to keep fighting over the issue despite Wednesday’s setback.

“This is unfortunate, but certainly not the end of this debate," James Ballentine, an ABA executive vice president said in a memo sent to banks. The group will “continue to work with and educate members who are interested in removing this language.”

Fundraising Issue

Jaret Seiberg, an analyst at Cowen Group Inc., predicted the battle between retailers and banks is far from over, which he said is good news for lawmakers.

“This is a great issue to fund-raise off of given how much it matters to banks, credit unions and merchants," Seiberg said in a note. Banks will continue to lobby for a removal of the cap and retailers may push for it to be expanded to include credit cards, he added.

Regardless of what happens in the House, Hensarling’s Financial Choice Act faces long odds in the Senate, where most bills need some Democratic support to pass. Senate Majority Leader Mitch McConnell said earlier this month that he’s not optimistic Congress will overhaul Dodd-Frank because of a lack of Democratic votes.

The bill is H.R. 10.

To contact the reporters on this story: Elizabeth Dexheimer in Washington at edexheimer@bloomberg.net, Billy House in Washington at bhouse5@bloomberg.net.

To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Gregory Mott