Merchants trumped bankers in a battle for billions Wednesday as the Senate voted to let the Federal Reserve slash fees that stores pay financial institutions when customers pay with debit cards.
Whether consumers will see any of that money remains to be seen.
The Fed will now issue its final rules on debit fees, called interchange fees, on July 21. It has recommended cutting the average 44 cents that banks and credit unions charge for each debit card transaction to no more than 12 cents, although the final plan could change slightly.
The fee is now typically 1 to 2 percent of each purchase. It produces $16 billion in annual revenue for banks, credit unions and the credit card companies that operate the huge payment networks, the Fed estimates.
Merchants say lower fees should let them lower prices. Banks warn that they'll have to recoup the lost revenue through other charges that likely will come directly from consumers' pockets, such as higher checking account fees.
Consumer groups were not a united front, either.
Edmund Mierzwinski, consumer program director for US PIRG, which represents state public interest research groups, said some banks might curtail rewards programs that many attach to debit cards, such as cash back or airline miles. But he said checking account fees would not rise.
"There will be competition," Mierzwinski said. "Banks will be forced to come up with innovative ways to lower costs in their card networks."
But Travis Plunkett, legislative director for the Consumer Federation of America, worried that the Fed's proposal might be too restrictive, tempting banks to "use that as an excuse to increase charges on customers they value the least, low- to moderate-income customers."
Scott MacDonald, head of the Graduate School of Banking at Southern Methodist University in Dallas, said that's exactly who the fee cap will end up hurting.
"They're the ones who use debit cards the most, because they've had trouble with credit cards," he said. "They'll be the first ones denied a debit card."
He said a bank's average monthly expense of maintaining a household checking account is $4 to $12.
Given current unusually low interest rates, which have depressed what banks can earn on those accounts, he said, higher checking fees are a likely response.
While the national debate focused on the nation's largest banks, Tarrant County's community bankers and one credit union said they, too will see a big cut in revenue.
Vernon Bryant, president of Fort Worth-based Southwest Bank, said his institution nets about $267,000 annually from debit fees. With the fee reduction and the $65,000 in fraud losses the bank experienced last year, debit cards would represent a net loss, he said.
"We're not that big a consumer bank, so we're going to sit back and see what happens," he said. But he voiced a common warning that banks will have to raise other fees, such as monthly maintenance charges on checking accounts, to recoup lost income.
Lonnie Nicholson, president of EECU credit union, called debit fees a significant portion of the $1.2 billion institution's revenue. He said the Fed's proposed rate is "woefully insufficient to recover the costs of a debit card program."
Merchants said that they will be forced to lower prices to reflect the curbed debit card fees.
Dennis Lane, who has owned a 7-Eleven store in Quincy, Mass., for 37 years, said he pays $7,000 to $10,000 annually in credit card swipe fees.
"Whenever I can reduce my cost of doing business, any responsible retailer reduces costs to the consumer," he said. He also said those savings could allow him to hire summer workers.
In Wednesday's vote, senators needed 60 votes to thwart the Fed's rules but fell six votes short, 54-45.
That delivered a victory for Sen. Richard Durbin, D-Ill., the Senate's No. 2 Democrat, who muscled the provision into last year's financial overhaul law requiring the Fed's action.
Thirty-five Republicans joined 19 Democrats in backing the unsuccessful effort to block the Fed.
Thirty-two Democrats, 12 Republicans and an independent voted to let the central bank move ahead; Sen. Joseph Lieberman, I-Conn., did not vote.
Staff writer Jim Fuquay contributed to this report, which includes material from The Associated Press.