A customer swipes a MasterCard debit card through a machine while checking-out at a shop in Seattle.
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At stake is $16 billion annually that the Federal Reserve says stores pay to banks and credit card companies when customers use the cards — fees the Fed has proposed cutting.
Cut the fees, banks say, and they'll have to abandon free checking and boost other charges to consumers to recover lost revenue. Merchants say lower fees would help them drop their prices and expand their businesses.
Currently, the fees typically range between 1 and 2 percent of each purchase, averaging 44 cents. The Fed has proposed capping that at 12 cents, though smaller banks could charge more. Bankers want lawmakers to delay the change in hopes that it will eventually be killed or toned down.
Patrick Lewis and Charles Garlock are foot soldiers in this fight's opposing infantries.
Each side is dispatching planeloads of hometown business people like them, along with armies of lobbyists and mountains of letters and e-mails to Washington. Some 4,000 local credit union officers swamped the Capitol last week, and around 300 merchants are buttonholing lawmakers this week. Unless Congress delays the deadline, the Federal Reserve must issue a final rule by April 21, to take effect three months later.
Mr. Lewis, a partner in 13 Oasis Stop 'N Go convenience stores in southern Idaho, was visiting Idaho lawmakers on Thursday urging them to back the Fed proposal. He said the $275,000 he pays yearly in debit card fees trails only payroll and his properties' mortgages and rents.
"I don't think her boss is necessarily on our side," he said spending a half hour with an aide to Rep. Mike Simpson, R-Idaho. "But maybe if we provide enough information it will change."
Mr. Garlock, president of the Rock Valley Federal Credit Union in Loves Park, Ill., said he would lose $150,000 to $175,000 annually if the Fed's proposed cut in fees is adopted, about one third of his credit union's net annual income.
"The little guys will be hit the worst. I can't sustain it," he said during his lobbying visit last week.
Though bankers are outspending their rivals on lobbying and campaign contributions and seem to have gained momentum, merchants so far have the upper hand. The bankers are trying to get Congress to undo legislation it passed just last year, a tall order on any subject.
Banks and merchants are often allied on such issues as taxes and regulation, but the debit card battle has driven them apart, each accusing the other of trying to pocket unjustified profits in what has become an emotional fight.
"Take a white kitten and put it out, and they will find ways to say how evil it is," Lyle Beckwith, lobbyist for the National Association of Convenience Stores, said of the bankers.
"This is as close to a pitchfork and torch issue as I've seen from our guys," said Jason Kratovil, lobbyist for the Independent Community Bankers Association.
Debit cards are now the most common way besides cash that consumers make purchases, according to the Federal Reserve. Though the transaction takes just a few moments, it is enabled by a vast behind-the-scenes system for preventing fraud and storing data.
When a customer swipes a debit card, it is tapping directly into their bank account to make a purchase. The debit card network, the customer's bank and the merchant's bank quickly exchange information and approve — or disapprove — the transaction, though the actual payment of money can take a day or two.
The battle is being waged with petitions, in newspaper and Internet ads and on the airwaves.
A coalition of banks and credit card companies has run a TV spot in Washington, D.C., in which a mom unloading groceries says Congress gave retailers a huge gift by allowing the fee to be curtailed. She asks, "I wonder who's left holding the bag."
Firing back in one response, Montana retailers have aired a radio ad aimed at Sen. Jon Tester, D-Mont., a critic of the rules, accusing him of "standing with Wall Street" against the state's small businesses.
The financial system overhaul law that Congress and President Barack Obama enacted last summer ordered the Federal Reserve to curb the so-called interchange fees but left specifics to the central bank. That subjected the
Fed to lobbying that included over 8,000 letters and nearly three dozen meetings with industry officials — mostly from banks and credit card companies.
Since the Fed's public comment deadline passed last month, the focus has shifted to Congress, where foes of the plan are expected to soon introduce legislation to delay it.
Unlike most issues in Congress, the dispute divided Democrats and Republicans internally since the industry groups each say its own side would help consumers and the other's would hurt them.
"This is why members hate voting on something like this. There's only downside," said Jaret Seiberg, a policy analyst at the financial firm MF Global.
Measured by sheer financial might, bankers have a clear edge.
Commercial banks, credit unions, and Visa and MasterCard — who run the biggest debit card networks — spent a combined $75 million lobbying on all issues in Washington last year, nearly double the retail industry's $40 million, according to the nonpartisan Center for Responsive Politics, which tracks such spending. The American Bankers Association, JPMorgan Chase, CVS Caremark Corp. and Wal-Mart Stores Inc. are among the biggest spenders.
Overall, financial firms outspent the merchants by about the same margin on contributions to candidates during the 2009-2010 congressional campaign, $12 million to $6 million.
Yet the bankers face the steeper climb. Not only are they trying to get Congress to reverse itself, they still bear ill will from their part in the nation's financial crisis and the bailouts that followed.
"To pass something you have to clear quite a few hurdles," said Doug Kantor, an attorney for the Merchants Payments Coalition, representing retailers. "It only takes missing one of those hurdles to derail an effort."
Even should the bankers prevail in the GOP-run House, they'd still have to contend with Sen. Richard Durbin, D-Ill. He got the changes included in the financial overhaul bill on a 64-33 vote and remains a tenacious advocate of the lower fees.
Should a new vote occur, Durbin is sure to use Senate procedures that would let him win with just 41 of the Senate's 100 votes. His job as the Senate's No. 2 Democratic leader means Democratic senators considering reversing their vote from last year would have to think twice.
"We face a challenge in this area, but we continue to push," said Ken Clayton, the American Bankers Association's chief counsel.
The bankers have made progress.
Six senators who backed Durbin last year are no longer in Congress. And Sens. Kay Hagan, D-N.C., Michael Bennet, D-Colo., and Mike Crapo, R-Idaho — who all backed Durbin last year — have expressed worries that an exemption the Fed proposed letting smaller banks continue charging higher fees will not work. Members of both parties on the House Financial Services Committee and Senate Banking Committee have also voiced concern.
Fed Chairman Ben Bernanke has given the banks more ammunition. He has told lawmakers that the exemption for smaller banks might not work and said uncertainty over that and other issues — such as whether to include banks' costs for covering debit card fraud in setting the fee — means the Fed might not complete the rule by April 21.