Tester Bends, Doesn't Break in Interchange Battle



Sen. Jon Tester: No retreat, no
surrender. Montana Democrat
plows ahead with plan to
delay implementation of Durbin
interchange rules.



The week began slowly for "Delay Durbin" proponents in the U.S. Senate where Majority Leader Harry Reid decided to debate oil company tax breaks, offshore drilling and judicial nominations. The small business innovation bill (S. 493), where the Tester Amendment to study and delay the rules on debit card interchange is pending, appears to be in legislative limbo (or purgatory if you wish). Two months remain before the Durbin Amendment is to take effect and the Federal Reserve Board has yet to publish a final rule.

Mid-week saw a significant momentum shift. The highlights are as follows:



Senate Majority Leader Reid.
If Tester can show support, he'll
give him a vote on delaying
Durbin.



• Sen. Durbin spent the last moments of the Senate session on Tuesday giving his interchange "stump" speech. He lashed out again at familiar opponents such as the Wall Street Journal and the American Bankers Association. Durbin revealed one news nugget by suggesting the Fed's final rule will be out the first week of June (Blogger's Note: Ben Bernanke is probably the only person who knows the exact date).
• 
  Majority Leader Harry Reid on Wednesday publicly backed Durbin against delaying the final rule, but he will give Tester a vote on his amendment provided Tester can demonstrate 60 votes in support.

Sen. Tester announced late Wednesday that he will revise his amendment to lower the study period from 24 months to 15 months. News reports speculated Tester's move was to garner a handful of remaining votes pushing him over 60 votes.

Tester is likely to file a revised amendment to another bill to accommodate the study period change and possibly other modifications. Many believe Tester will file the new amendment to the Patriot Act renewal bill which the Senate is likely to debate the week of May 23 (certain parts of the Patriot Act are set to expire May 28).

Please visit next week as this tug-of-war grows ever more intense.

Tester Bends, Doesn't Break in Interchange Battle

Tester and Frank Drive News of the Week

Frustration defined is watching the U.S. Senate trying to pass bill on the Floor. The Senate's attention this week was dedicated to the small business bill (S. 493) and government shutdown/budget talks. Sen. Jon Tester's amendment (#267) to delay implementation of the interchange debit card rules remains pending to the small business bill, but no agreement has been reached to call it up for a vote at this writing.

Sen. Tester took both to the Senate Floor and the media airwaves to tout his effort to delay and study the debit card rules. On CNBC's Squawkbox, Tester expressed confidence that he will have 60 votes in support of his amendment when called on the Floor. Sen. Richard Durbin also spoke on the Floor and with CNBC against any effort to delay implementation of his amendment.

On the House side, Rep. Barney Frank, former chair of the House Financial Services Committee, and one of the namesakes of the sweeping Dodd-Frank Wall Street Reform Act, made news by supporting legislation that would delay implementation of the Durbin Amendment. The House bill (H.R. 1081) gained more bipartisan co-sponsors this week (current total is 71). Frank's support for delay makes it a near certainty the House can pass a bill with a strong, bipartisan majority.

This takes brings us back to the Senate.. The Senate Floor schedule for next week has not been announced and it is unclear how a possible government shut down will affect Floor activity. We do know both the House and Senate are scheduled for a two week recess (Apr. 18-29). Again, a government shutdown could call into question that schedule as well.

The legislative process, above all else, requires patience sprinkled with some humor.

Tester and Frank Drive News of the Week

House to Senate: You Go First

Rep. Spencer Bachus, chair of the House Financial Services Committee, made the most significant news this week on the "Delay Durbin" front. He told a group of international bankers that the House would wait for the Senate to act on legislation delaying the Federal Reserve's interchange proposed rule on debit cards. Chairman Bachus took this position despite his Committee having two hearings in the last month on this issue and hearing broad, bipartisan support for a delay and study approach.

So, what is happening on the Senate side? News reports this week suggest a bill introduction to delay Durbin is eminent. These reports also identified Sens. Jon Tester (D-MT), Tom Carper (D-DE) and Bob Corker (R-TN) as the lead sponsors. The good news here is all three Senators are members of the Banking Committee which would first consider any legislation affecting the Durbin Amendment from Dodd-Frank. Expect a bill to be dropped the week of March 14.

Two interesting organizations jumped into the Durbin discussion this week as well. The Officer of the Comptroller of the Currency (OCC) wrote the Federal Reserve to voice strong concerns with the proposed rule's inflexibility for companies to recover identifiable costs associated with running a debit card program. The National Association for the Advancement of Colored People (NAACP) wrote House Speaker John Boehner (R-OH) this week urging the House to move swiftly on legislation to delay the implementation of the Durbin Amendment because study has not taken place on the potential impact to the unbanked and "risker" consumers.

Please visit my blog next week as I hope to finally report on actual legislation and its contents.

House to Senate: You Go First

Upcoming Budget Battle Versus Durbin Interchange Amendment

March typically is an important month on Capitol Hill. Varying constituent groups from all over the country fly in to Washington for meetings with senators, representatives and their staff. Committee agendas are prioritized. Bill introductions increase dramatically. Work on the next fiscal year’s budget begins in earnest.

The prospects of a government shutdown loom over this current Congress. The question is how much energy and time will Members have to tackle important, non-budgetary issues such as the Durbin interchange amendment. We should have a clearer answer in the coming weeks.

The House Financial Institutions and Consumer Credit Subcommittee will conduct a hearing Wednesday on the effects of the Dodd-Frank Act on small financial institutions and small business. As you may recall, this Subcommittee dedicated an entire hearing on the Federal Reserve’s proposed rule on the Durbin interchange amendment on February 17. Hearing details are scant at this writing, but one must assume more time will be devoted to the interchange issue.

On the Senate side, Sens. Kay Hagan (NC) and Michael Bennet (CO) wrote Federal Reserve Chairman Ben Bernanke to urge him “…to create a meaningful and workable small issuer exemption from the interchange requirements.” They cited Bernanke’s own testimony before the Senate Banking Committee recently that the small issuer exemption may not be workable in the marketplace. A consensus is emerging among all Durbin interchange amendment players (with the exception of the merchants) that, at a minimum, the small issuer exemption needs fixing.

The good news is momentum has not waned on Capitol Hill to understand the impact of the Fed’s proposed rule on interchange. Let us hope to avoid the bad news of a possible government shutdown short-circuiting this important policy work.

Upcoming Budget Battle Versus Durbin Interchange Amendment

Interchange, Durbin and Small Institutions

The Durbin Interchange Amendment exempts thousands of smaller banks and credit unions from the interchange fee caps proposed by the Federal Reserve on December 16. Put this in the unintended consequence file. While seemingly well intentioned, in effect the law would create an unsustainable two-tiered fee approach that would end up further disadvantaging these institutions, rather than helping them.

Last week's House hearing showed that that if there is one thing large and small institutions have in common it's dissatisfaction with this provision. It's hard to fathom why the drafters of Durbin couldn't foresee that a system where the larger banks, which contribute the volume that makes our electronic payments system work and which would be subject to Durbin's administrative pricing, would continue supporting a system where their competitors were given a ten stroke handicap.

It's also worth noting that the legislation seems to turn standard merchant agreements on their heads by opening the door for retailers to offer lower pricing to customers whose large bank-issued cards are subject to the government's administrative pricing. Or higher pricing to customers whose cards were issued by their credit union. Conceivably, the largest merchants who worked the hardest for Durbin and stand to profit the most by it could encourage customers to avoid using their credit union or community bank-issued cards altogether because they're more expensive for the retailer.

Will we also see retailers turn away those cards issued by smaller institutions because they carry higher interchange fees? It is possible that some retailers would do this. We all know the dirty little secret that some retailers for years steered customers away from signature debit to another form of tender. That other retailers set a floor limit on small, low margin purchases. That some retailers won't accept electronic payment on sale items. That's with the strict card acceptance policies in their merchant agreements. What will happen if the proposed Fed rules are finalized in their present form? Who knows?

One thing seems certain. With scores of credit unions and community banks in virtually every Congressional district, Congress will continue the dialog begun at last week's House hearing on this subject. The Fed is teeing up Congress' ball on this issue. But it might be time to take a mulligan and tee it up again.

Interchange, Durbin and Small Institutions