There's a battle brewing in Washington that could impact the way you spend your money. I'm talking about how you use your debit card.
Nestled in the 2300 plus page financial reform was "The Durbin Amendment" which sets a price on "interchange fees"—the amount a bank charges a retailer everytime a consumer uses a debit card for a transaction. Visa and MasterCard , control 80 percent of the debit market and they set the debit interchange fee rates.
The Durbin Amendment would put a cap on interchange fees. In response to the amendment, some banks lare limiting the dollar amounts of debit card purchases or raising other feesto make up for the amount of money they are losing on a transaction.
I decided to speak with Senator Bob Corker (R-TN) who recently introduced a bill that would slow down the implementation of the Durbin Amendment, which is set to take effect on April 21.
Sen. Corker: I don't think the federal government should be setting prices. I fundamentally disagree with that. I emphasize that there is an issue here with retailers. I understand there is tremendous difficulties in negotiating with these entities but arbitrarily setting a price and have the Federal Reserve chairman do it is not the way to go. The way this amendment was passed was not correct.
It was never debated and it was never discussed until the amendment was brought up to vote. The folks that regulate these entities have even said this is problematic. You could tell in Ben Bernanke's testimony that he was very uncomfortable with the orders he was given by Congress on how to set this.
The OCC and the FDIC have both said this is highly problematic. If you were going to set prices you couldn't do it properly against the standards laid out in the Durbin amendment.
One of the things Lori that was really odd was they set a dual pricing mechanism. Where institutions that are 10 billion dollars and above are able to charge 12 cents and intuitions that are 10 billion dollars and below (like credit unions, community banks) are able to charge 44 cents per transaction.
Well, people have quickly realized that the smaller institutions are going to quickly migrate to 12 cents in order to compete with the big banks. This is way below their costs and the fact is people are talking about charging consumers additional fees, setting limits on the amount of debits you can do or ending the ability of using debit cards all together for those individuals who have riskier credit. In the end, there will be less credit available and the consumer will pick up the tab.
This is happening in the market place because of this ruling. The institutions have to make it up somehow and this is bad for U.S. consumers and philosophically it is bad for the government to be setting prices. There's got to be a better solution to the Durbin Amendment. I was shocked that something like this was passed in the reform bill.
LL: The fear among the banks and credit unions is the merchants may place multiple restrictions on their acceptance of debit cards and deny debit cards issued by small institutions in favor of debit cards issued by large institutions, knowing the larger institutions are limited in their ability to charge higher interchange fees.
What are you hearing from merchants in your district?
Sen. Corker: In a market place like this where there is a difference in pricing, people will choose the lower cost provider. It's understandable. The OCC has said this amendment is detrimental and what they are talking about is the impact it will have on the small banks, the community banks that exist throughout our country.
LL: We are debit card society. More people carry debit cards than cash. Could this impact consumers spending habits?
Sen. Corker: Yes we are and I'm really glad you brought that up.
Because the debit card is where people are using the money they have and spending it. What might be one of the unintended consequences of this amendment, is people will move more towards using credit cards.
Debit cards enforces a persons's ability to spend money that they have which is a good thing versus spending money they don't have. This could move the less credit worthy consumers back towards credit cards which is not the direction you want to go.
LL: Do you think your bill as a chance of passing?
Sen. Corker: We are picking up a number of co-sponsors. This is about money and it will be an all out assault.
I have gotten calls from CEOs of retail operations and their friends and I respect them and I can understand Congress has passed something that benefits them. But, I don't think the retailers would want the government setting prices for them.
This will be an all out assault on the small credit unions and community banks against the big boxes in our country like Wal-Mart and that's the way the battle lines are shaping up.
I don't want to be overly optimistic on the chances, but I certainly believe there are numbers of people who voted for this and have now seen the outcome and realized what they voted for is highly problematic and they would like to slow it down. If nothing changes, the Durbin Admendment will still go into effect.
All this bill does is slow this process down and give everyone a chance to review this in a in depth manner and do something far more thoughtful. This was done in a moment of populist fit and rushed through and I don't think there are many people, even the beneficiaries of this amendment, who would want themselves judged under this same criteria.
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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."