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Store owners, banks battle over debit-card transaction fees

DEBIT-TRANSACTION-FEES

A customer uses a debit card at a 7-Eleven in St. Louis owned by Mike Foster, who says debit-card fees are his third-largest monthly expense behind rent and payroll.

St. Louis Post-Dispatch Enlarge

WASHINGTON — Mike Foster, who owns a 7-Eleven in St. Louis, arrived at the U.S. Capitol recently with a burning question: What happened to the new law aimed at lowering charges on debit-card transactions at his store?

The answer is that in fevered lobbying, financial institutions have been working to delay rules that cut by billions of dollars their revenue from debit-card transactions.

These "interchange fees" — better known as swipe fees — became part of the broad financial overhaul signed into law last summer after several years of effort by U.S. Sen. Dick Durbin (D., Ill.). He initially set his sights on lowering the fees on all credit cards. But he retreated in the face of lobbying by banks and inserted an amendment on debit-card fees into the overhaul.

The law directs the Federal Reserve to ensure that the debit card fees retailers pay are "reasonable and proportional to the issuer's cost." The current plan would cap the fee at 12 cents; merchants now assess an average of 44 cents.

For Mr. Foster, the fees are the third-biggest cost after rent and payroll at his 7-Eleven. "The big banks had plenty of time to make their arguments, but all of a sudden they're squealing that it's the end of the world," he said.

Last month, nine senators signed on to legislation that would delay the debit-card fee change for two years. The chief sponsor, Sen. Jon Tester, a Democrat from Montana, argued that more time is needed to judge the impact on consumers, credit unions, and small banks. He is pressing to pass the legislation quickly because the Fed is scheduled to issue its rules April 21; they would go into effect in July.

Mr. Durbin acknowledged in an interview that he is frustrated at unfolding events after securing 64 votes for his amendment last year.

"The big banks and credit-card companies have been saved from their own internal failures and shortcomings time and time again by this government," he said. "Now, here they go again looking for a break on interchange fees worth $1.3 billion a month to them."

Mr. Durbin, the Senate's No. 2 Democrat, exempted smaller banks and credit unions — institutions with less than $10 billion in assets.

Even if he loses, Mr. Tester hopes to send a message to the Federal Reserve. Fed Chairman Ben Bernanke is among those who have questioned a two-tiered system's effects on smaller banks.

According to lobbying records, the American Bankers Association spent more than $7 million on lobbying in 2010, and at least five additional lobbying firms have registered on the bankers' behalf so far this year.

On forms filed with the Senate, four of them list implementation of the new financial bill or simply interchange fees as their focuses.

The banks' lobbying investment could prove wise if it succeeds in delaying the fees, which amount to $16 billion annually. Meanwhile, banks are warning that if they lose the battle, they will begin raising other fees.

Smaller banks, too, are threatening additional fees if the Fed is allowed to proceed.

In recent congressional testimony, a spokesman for the Independent Community Bankers of America said fees could be imposed on services not offered at no charge, including checking accounts and online banking.

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