GOP to drop effort to remove caps on debit card fees in win for retailers

• House Republicans had planned to repeal the Durbin amendment, a measure opposed by banks but supported by merchants.
• "I've said before that repeal of the Durbin amendment was the most contentious part of the bill among Republicans," committee Chairman Jeb Hensarling said in a statement.

A plan that would have removed limits on what banks can charge retailers for debt card fees won't be part of financial reform legislation making its way through Congress.

House Republicans had planned to repeal the so-called Durbin amendment, a measure opposed by banks but supported by merchants who complained they had to shoulder the burden of rising debit card fees that issuers were charging.

The House Financial Services Committee has agreed to omit the repeal language to allow the bill to get through after being met with resistance as it tallied potential votes for the legislation this week. The Financial Choice Act is the GOP's plan to change parts of the Dodd-Frank reforms passed after the financial crisis.

"I've said before that repeal of the Durbin amendment was the most contentious part of the bill among Republicans," committee Chairman Jeb Hensarling, R-Texas, said in a statement to CNBC. "I believe it belongs in the Financial Choice Act, but I recognize and respect that many members of Congress feel differently."

CNBC reported on May 2 that Hensarling privately had told financial industry executives and lobbyists that the Durbin amendment repeal would be excluded from the final legislation.

Bankers opposing the Durbin amendment contended that the caps resulted in a windfall for retailers at the expense of financial institutions. Opponents also said that the limits actually ended up costing consumers more when banks started charging other fees to make up for the lost revenue.

"The House Republicans' capitulation on Durbin repeal is a slap in the face for lower-income Americans," Iain Murray, vice president for strategy at libertarian think tank the Competitive Enterprise Institute, said in a statement. "All the evidence suggests the cap on debit card interchange fees resulted in a windfall for retailers who failed to pass on savings to consumers."

The debate set up a heated lobbying conflict between the two sides, with retailers prevailing after it became clear that the 600-page Choice Act was unlikely to pass with the repeal in place.

Analysts at FBR said that while the House bill now could make it through, its chances considerably slimmer in the Senate.