This Sunday, Oct. 1, marks the one-year anniversary of the Durbin Amendment, which capped the swipe fees banks and card networks (Visa and MasterCard) could charge merchants to process debit card transactions. The amendment set off a fierce lobbying battle between retailers and banks; efforts to repeal the law failed last year.
If you thought the fight was over, think again. A year later, the battle over how much banks can charge to process transactions still rages.
The Durbin Amendment, named after the Illinois senator, would at first glance seem like a clear victory for merchants. After all, the Federal Reserve capped the average fee at 21¢ per swipe, less than half of what banks had been charging. While retailers are happy with the victory, they have insisted that they are due more. “We’re halfway there,” says Mallory Duncan, general council for the National Retail Federation. Last year NRF and other merchants sued the Federal Reserve in U.S. district court, saying that the Federal Reserve itself found that banks spend only 4¢ processing each transaction and had initially proposed a 12¢ cap. The case is still working its way though court.
Trish Wexler, a spokewoman for the Electronic Payments Coalition, which represents banks and payment networks, says the Durbin caps are already too low and should not go lower. “From our perspective the retailers got this legislation by promising consumers will save all this money,” she says. “To date they are still not passing along savings.” She says any idea that retailers are using the savings to offset potential price increases, as Moody’s (MCO) has suggested, “sounds like a convenient excuse.”
This legal battle is just for processing debit card transactions. Things have also heated up with credit cards, which cost retailers far more. In July, Visa (V), MasterCard (MA), and a number of major banks agreed to pay more than $6 billion in a proposed settlement over price-fixing claims brought by merchants in a case that started way back in 2005.
Since July, one by one, many large merchant groups have disavowed the proposed settlement. First convenience store owners, then large retailers, and finally on Sept. 24, the National Restaurant Association joined the groups vowing to object to the settlement in court. The merchants say the settlement doesn’t change the market structure and still allows the card networks to set prices. They also object to portions of the settlement that limit future legal challenges to the networks, even by merchants who don’t yet exist. “Our members are incredulous,” Duncan says. “It would be better if we went to trial and lost,” explaining that merchants would then be able to challenge the networks on different grounds.
Wexler says the merchants are merely rehashing old concerns. “They are acting like this is new information,” she says. “If they had strength with the arguments, then clearly this would have been part of the agreement. What does that tell you?”
Both sides expect a January court ruling will determine if the credit-card settlement will get preliminary approval. Either way, it’s not likely to be resolved then. There may be additional legal objections and the prospect of turning again to Congress for help as with the Durbin Amendment. Rinse. Repeat.
