This vote was on an amendment by Dick Durbin, D-Ill., that would require the Federal Reserve to create new rules for “reasonable and proportional” debit card “swipe fees” (or “interchange fees”) that are more directly related to the actual costs of debit card transactions. The amendment was offered to a bill that aims to close gaps in financial regulations, strengthen oversight of consumer lending and more closely oversee complex financial investments.
When a business decides to accept credit cards for its purchases, it must pay these credit card companies (such as Visa or MasterCard) for the privilege of allowing it to use those services. Each time a consumer swipes a credit or debit card, that merchant must remit a small amount of money for processing that transaction, known as an “interchange fee” or a “swipe fee.”
Durbin’s amendment would only focus on swipe fees charged for debit card transactions because they are considered relatively less risky than a credit card transaction.
Durbin said Visa and MasterCard require these fees each time someone swipes their card, and that they range from 1 percent to 3 percent of the amount of the transaction.
“Why do they do this? Some of it is to help the banks cover the cost of conducting the transaction. Most of it is to induce banks to issue more Visa and MasterCard credit cards. Around $50 billion in interchange fees were collected in 2008, with about 80 percent of that money going to 10 of the largest banks in America—80 percent of it. The card-issuing banks use this interchange revenue to pay for ads, to offer rewards, to issue more cards. Not surprisingly, the revenue also helps banks make large profits and give bonuses to their CEOs. Banks love the money, and they love the current interchange system,” Durbin said. “The troubling thing about interchange fees is they are deducted from every transaction left for the seller. The business may end up with only $98 out of $100 that is on the debit card, maybe less. To make up for interchange fees, businesses are forced to raise their prices, cut back on expenses or something such as that. They may even cut back on employees to keep up with these interchange fees.”
“My amendment will bring some reasonableness to the system. It tells the Federal Reserve to ensure that debit fees are reasonable and proportional to cost and not just a way of generating huge profits at the expense of small businesses,” Durbin said.
No one spoke against the amendment.
By a vote of 64-33, the amendment was adopted. Of Democrats present, 46 voted for the amendment (including a majority of the most progressive members) and 9 voted against it. Of Republicans present, 17 voted for the amendment and 23 voted against it. The end result is that the measure went forward with language requiring the Federal Reserve to draw up new rules intended to ensure that debit card “swipe fees” are related to the actual costs of facilitating the transaction.