Handing the banking industry a defeat and possible price breaks for consumers, the Senate today approved restrictions on the “swipe fees” that MasterCard and Visa payment networks charge merchants on card transactions.
In a 64-33 vote, the amendment introduced by Assistant Senate Majority Leader Dick Durbin, D-Illinois, would remove “anti-competitive provisions” from Visa and MasterCard contracts that would allow merchants to offer customers discounts for choosing a credit or debit card, or opting for cash.
The amendment is part of the broader financial system reform bill expected to pass this month, with hotly-debated provisions still pending – including a consumer protection bureau and regulations on the huge derivatives trading market.
Durbin’s amendment is widely seen as a victory for retailers, restaurants and small businesses overall because Visa and MasterCard unilaterally set interchange fee rates that apply to all banks within their card networks.
The measures requires the Federal Reserve to determine if interchange fees are “reasonable and proportional” to the costs of a transaction.
“This is a great victory for consumers and retailers,” said Katherine Lugar, executive vice president for government affairs, for the Retail Industry Leaders Association. “With this vote today, the U.S Senate has stood up to defend consumers and retailers, protecting them from the excessive fees and anti-competitive practices imposed by big banks and credit card companies.”
Merchants have to pay the top payment processors the “swipe” or interchange fees – ranging from 1 percent to 3 percent of the transaction cost.
Visa and MasterCard pass along those fees to the banks that issue their cards. About $50 billion in interchange fees was collected in 2008, and about 80 percent of that money went to the ten largest banks, Durbin said.
Durbin’s amendment affects banks with $10 billion or more in assets, exempting more than 99 percent of community banks and credit unions.
“Swipe fees are supposedly charged by Visa and MasterCard in order to cover the cost of processing a credit or debit card transaction,” Durbin said. “However, Visa and MasterCard continue to raise swipe fees even though processing costs have decreased.”
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