Where will all this banking reform lead? Don't get confused, the consumer side of the equation isn't the only side under review. Congress is looking at all sides of the issue, and in this WSJ article processing debit card transactions is the next aspect of the industry under review and reform.
From the Wall Street Journal on May 14th:
By GREG HITT And MICHAEL R. CRITTENDEN
WASHINGTON—The Senate, voting 64-33, moved Thursday to curtail the "swipe fees" that financial companies impose on debit transactions, underscoring the increasingly populist tint of pending legislation that would overhaul regulation of the financial-services sector.
Under the amendment offered by Sen. Richard Durbin (D., Ill.), the Federal Reserve would be authorized to regulate the fees charged to businesses by financial firms on debit cards, and empower merchants to offer discounts to customers if they pay with cash, check or a debit card.
The amendment's backers say the fees imposed on debits are higher than the actual cost of processing those transactions, and annually generate billions of dollars in costs that are eventually passed on to consumers. Mr. Durbin said the financial companies are imposing "outrageous" fees on merchants and retailers.
"In a time of recession, when we need small businesses to step up and create jobs, this is a way to move forward," he said.
Under Mr. Durbin's proposal, banks and credit unions with $10 billion or less in assets would be exempt from the new limits. Even with the exemption, Mr. Durbin said his proposal would cover 65% of all debit transactions.
The amendment's potential cost to the banking industry is unclear, as the Fed would have to determine what "reasonable and proportional" fees the banks should be allowed to charge merchants for using their cards.
Still, the amendment represents a potential hit to financial companies that count on revenue from these transactions, and the proposal was opposed by the industry, including groups representing smaller banks and credit unions.
According to the Merchants Payment Coalition, which represents retailers, "nearly $2 of every $100 consumers spend using credit cards goes directly to Visa and MasterCard."
Dan Berger, a lobbyist for the National Association of Federal Credit Unions, warned the proposal would hurt credit unions and small banks, and wouldn't help consumers. "This will do nothing for consumers but go straight to the bottom line of the big box stores and giant retailers," he said after passage of the amendment. A statement issued by MasterCard Inc., a major issuer of cards, said "the Durbin amendment would give lobbyists for big retailers what they have been unable to achieve through other efforts–the ability to maintain all the benefits they receive from debit card acceptance while transferring the cost to consumers."
Merchant groups, who have pushed lawmakers to review the fees they incur for accepting debit cards, were vocal in their support of the Durbin amendment. "With this vote Senators have a choice, they can defend the bad acts of biggest Wall Street banks and credit card giants or they can stand up for consumers and small businesses," said a statement issued by the Merchants Payments Coalition, an umbrella group representing supermarkets, drug stores and convenience stores, among others.
The provision wasn't in the financial regulation bill that passed the House of Representatives in December, and the issue is likely to be hotly debated in coming congressional negotiations over the final regulatory overhaul bill. Senate Democratic leaders hope to pursue next week final passage of the broader bill, which is designed to address the root causes of the 2008 financial crisis.
The bill, broadly, would rewrite financial regulations, increasing consumer protections and limiting risk-taking in the banking system.
The vote divided both parties, underscoring the complexity of the issue. But the Durbin proposal has gained momentum in recent days. Democratic Sens. Arlen Specter of Pennsylvania and Blanche Lincoln of Arkansas—who are locked in tough primary campaigns—both backed the measure. Ultimately, 17 Republicans joined 46 Democrats and one independent, Vermont Sen. Bernie Sanders, in support of the amendment.
One supporter, Sen. Susan Collins (R., Maine), said the proposal would level the playing field between merchants and card issuers. "I'm hearing increasingly from retailers who are having to pay large fees on debit cards and feel that they have no ability to negotiate with Visa and MasterCard because they control so much of the market," she said.
—Damian Paletta and Victoria McGrane contributed to this article.