Senate votes to force banks to trim fees for debit transactions
Retailers say they could pass savings on to consumers
WASHINGTON — The Senate voted last night to force big banks to reduce fees for debit card transactions and permit merchants to offer customer discounts if they use cash, checks, or debit cards for purchases.
The Senate voted 64-33 to include the fee requirement in a package of financial rules the Senate is considering to ward off a repeat of the financial crisis.
The vote was a major defeat for banks, which lobbied heavily to defeat it. But the measure received heavy bipartisan support and surpassed a 60-vote threshold for passage. Both Massachusetts senators, Democrat John F. Kerry and Republican Scott Brown, supported the amendment.
The measure from Senator Richard Durbin, a Democrat from Illinois, would force credit card companies to charge businesses less for debit card transactions than for those of credit cards.
Under current practice, a business that accepts major credit cards signs agreements with the card companies to pay a percentage of each transaction, usually about 2 to 3 percent. But credit card charges cost more to process than swipes with a debit card. The change would represent the most direct and tangible consumer benefit of the regulatory overhaul and would amount to a triumph for Durbin, who failed to get a similar proposal attached to an overhaul of credit card regulations last year.
The issue pitted the politically popular appeals of small business owners against the influence of community banks and the lobbying power of the credit card companies.
Durbin’s measure requires that once merchants can pay lower fees for debit card purchases, they then would be able to offer discounts to their customers based on their method of payment.
“To bring competition to credit cards is going to help these businesses and ultimately help consumers,’’ Durbin said.
“This is an issue that is not just a Main Street small-business issue, this is an issue that affects in our industry 160 million consumers a day,’’ said Henry Armour, chief executive of the National Association of Convenience Stores, which support the proposal.
In addition to the vote on the credit card issue, senators supported:
■ Ending the ability of financial institutions to choose the credit rating agencies that rate their investment products, a measure aimed at eliminating potential conflicts of interest. The measure, sponsored by Senator Al Franken and passed 64-35, Democrat of Minnesota, would require an independent board to assign ratings firms to assess the risks of new investments. It would replace a current system whereby banks issuing investments select and pay ratings agencies for their assessments. Critics had argued that relationship created incentives for ratings agencies to issue rosy assessments and resulted in safe ratings for risky investments that fueled the 2008 economic breakdown. Both Brown and Kerry supported Franken’s measure.
■ Ending the government’s reliance on ratings agencies as a standard for determining credit worthiness. The most prominent agencies are Standard & Poor’s, Moody’s Corp. and Fitch Ratings.
■ Rolling back a proposal that would force banks to own a piece of mortgage-backed securities that they sell to institutional investors. Senators agreed by voice vote late Wednesday to give banks a way to avoid the requirement they hold at least a 5 percent interest in mortgages they assemble for sale. Banks lobbied against the requirement — designed to force banks to have “skin in the game’’ to ensure they make better loans.