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Swipe Fee Reform: Banks Lose, Merchants Prevail In Senate Vote

Swipe Fee Reform

First Posted: 06/08/11 05:15 PM ET Updated: 08/08/11 06:12 AM ET

WASHINGTON -- The six-month Senate fight over debit card swipe fees is finally over. The banks lost.

An amendment pushed by Sen. Jon Tester (D-Mont.) that would have delayed implementation of a law that caps the fees banks can charge merchants for swiping debit cards picked up 54 votes, with 45 voting against. It fell six short of the 60 needed to break a filibuster. But in the year since the Senate last voted, the banks managed to shave 19 votes off the merchants' total. In May 2010, the Senate approved interchange reform by a 64-33 margin, setting a cap at twelve cents per transaction. Sen. Joe Lieberman (I-Conn.) was the only Senator who did not vote, but in a Tuesday interview with HuffPost, he indicated that he was supporting Tester and the banks.

HuffPost followed the debate live on Wednesday and in April wrote about how the off-radar issue was quietly dominating the congressional agenda, with Wall Street battling major retailers for every last vote.

Sen. Bob Corker (R-Tenn.) who, with Tester, cosponsored the amendment to delay swipe fee reform, acknowledged the intensity of the corporate squabbling.

"The people have spoken," Corker told reporters after the vote. "This was a tough fight ... I apologized to my colleagues non-stop for causing them to have to be involved in this," Corker said.

Senators dreaded the vote because no matter whose side they chose, a major corporate interest would be angered. "They don’t wanna choose between their two favorite children," Sen. Tom Carper (D-Del.), a bank backer, said before the vote.

As the votes began coming in, Sen. Dick Durbin (D-Ill.) sat alone at his desk on the Senate floor, flashing a wide, relaxed grin. Tester appeared nervous as counting began, but his posture became visibly relaxed after the 41st Senator voted against his legislation. Tester laughed in conversation with supporters Joe Manchin (D-W.Va.) and Kay Hagan (D-N.C.) once it was clear he'd lost. After six months of wrangling and millions of dollars in lobbying, the fight was finally over.

The KBW Bank Index has declined since the vote. The index was at 46.78 at 2:04 p.m. ET, the time the final tally was recorded. At 3:35 p.m., the index hit the day's low at 46.26, a decline of 1.1 percent from the time of the vote. The day's high is 46.99, recorded at 12:12 p.m.

The House is generally supportive of the bank position, but there will be little appetite to continue the fight now that the Senate has rejected it. One bank lobbyist said that it'll be "tough to get traction. But I'll do whatever they tell me to."

You don't lose 19 votes in the Senate without some folks flip-flopping. Several senators switched sides over the course of the year, among them Hagan, a former Durbin supporter who signed on as a cosponsor for Tester on Tuesday. Other Democrats who flipped from supporting merchants to Wall Street include Ben Nelson (Neb.), Barbara Mikulski (Md.), Michael Bennet (Colo.), Mark Begich (Alaska), Kirsten Gillibrand (N.Y.), Claire McCaskill (Mo.), Debbie Stabenow (Mich.) and Jim Webb (Va.).

Many of these senators have a close relationship with Sen. Charles Schumer (D-N.Y.), who flipped to support Wall Street. As former head of the Senate campaign arm, Schumer recruited Senators Hagan, Bennet, Begich, McCaskill and Webb and is very close with Ben Nelson and his New York colleague Gillibrand. Baucus, who also flipped, is Tester's senior senator in Montana.

But Schumer wasn't actively whipping support on the Senate floor. He arrived early for the vote and cast his ballot on behalf of Tester's amendment, but he made no effort to persuade his colleagues to do the same and left within two minutes of arriving, leaving the floor to Durbin and Tester.

The banks did have an ally on the floor, though: Alan Dixon, a bank-friendly former Democratic senator from Illinois, was spotted in the Senate chamber during the vote.

On the GOP side, Mike Crapo of Idaho and Roger Wicker of Mississippi switched sides, jumping from the merchants to the banks. Bill Nelson (D-Fla.), meanwhile, didn't vote in 2010 but sided Wednesday with the banks.

The biggest surprise was perhaps from Sen. John Boozman (R-Ark.), who voted with Tester and the banks, despite a heavy push from Walmart, which is headquartered in Boozman's state. In April, Boozman told HuffPost that he was undecided, but strongly opposed the notion of fixing prices.

Big banks have not lost many fights in Washington in the aftermath of the Wall Street bailout, but Wednesday's vote underscored at least one limit on their power. Wall Street can beat almost anyone in a legislative brawl, but it cannot defeat the entire American retail industry.

Banks score $16 billion a year from swipe fees, with $8 billion flowing to just 10 banks. Stores of all sizes hate paying the fees and have argued that they will be able to pass on lower prices to consumers if swipe fees are capped. Several retailers, including Home Depot, have also acknowledged that they will not pass on all of the savings to consumers.

Last year's Wall Street reform bill required the Federal Reserve to crack down on the fees on debit cards, which currently average 44 cents per transaction. In December, the central bank proposed a rule limiting fees to 12 cents a piece. Today's failed vote to delay that rule means it will go into effect on July 21.

Stores were quick to declare victory. The Main Street Alliance, a coalition of small business owners, circulated a statement from Mary Noel Black, owner of a Baton Rouge, Louisiana, UPS Store.

"Today’s vote was a big win for small businesses," Black said. "Today, 45 Senators stood up to the bottomless pockets of Wall Street’s lobbying operations and said enough is enough."

The reaction from Durbin's office was more muted. "We don't take victory laps," said Durbin spokesman Max Gleischman.

Corker told reporters that he and Tester had "turned numbers of folks" but also said that too many were worried that they would be castigated for flip-flopping if they had voted for Durbin previously.

"Some of the folks were worried politically even though they knew the policy was right," he said. "They were worried that folks back home wouldn't understand their vote."

Corker added there may be another chance to push for changes on card fees, but that he thinks the issue will be laid to rest for a while.

"For a period of time, the water is sort of under the bridge," he said.

Wall Street stood to make the most from Wednesday's vote, but politicians supporting Tester and Corker typically couched their position as a defense of small banks and credit unions. However, all banks and credit unions with less than $10 billion in assets are explicitly exempted from the pending fee caps. Fed Chairman Ben Bernanke has warned that this exemption will not actually work in practice, although Visa has announced that it will be able to accommodate charging different fees for banks of different size. Only three credit unions will be directly affected by the price controls, and one of them, the North Carolina State Employees Credit Union, explicitly acknowledged to HuffPost on Tuesday that it is not lobbying on the issue and does not expect to begin charging its customers new debit card fees as a result of the legislation.

In a statement after the vote, Tester again shied away from the benefits his bill would bestow on large banks, criticizing "big-box retailers" and mentioning "rural America" three times.

"This measure earned broad support from both sides of the aisle because it was a bill written by Main Street rural America," Tester said. "Despite falling short of 60 votes today, our fight for rural America marches on. I’ll always remain on the side of rural America."

The vote has significant implications for the Democratic Party. Tester, a protege of Schumer, faces a tight reelection bid in November. But he has proven a prolific fundraiser, aggressively courting Wall Street. Schumer is officially the third-ranking Senate Democrat, but has taken over many of the duties of top-ranking Majority Leader Harry Reid (D-Nev.). As Majority Whip, Durbin is the second-ranking Senate Democrat, and although Schumer officially remained fairly quiet as the swipe fee squabble dragged on, the vote was perceived in Washington as part of a struggle between the two lawmakers for the top leadership spot after November. The two are long-time housemates and friends.

The vote also reflects Durbin's fundraising strategy for the Party. Unlike most Senators, Durbin was all too happy to criticize Wall Street banks during the debate, even taking on JPMorgan Chase CEO Jamie Dimon by name, mocking his outsized bonus from the Senate floor. As financiers have given more and more heavily to Republicans of late, Durbin has opted not to appease bankers but instead create a different fundraising base for the Democratic Party by targeting other segments of corporate America. And major retailers like Walmart and Home Depot are much happier with Durbin and the Democratic Party today than they were a year ago.

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