Banks and card-payment networks suffered a blow in Congress as the Senate failed to delay the implementation of price caps on debit-card fees charged to retailers.
Shares in Visa and MasterCard fell 3.9 per cent and 1.5 per cent, respectively, after the long-anticipated Senate vote on Wednesday, the first attempt to unwind part of last year’s Dodd-Frank financial reforms.
Lobbyists have been fighting to overturn the caps on so-called “interchange” fees before they are implemented by the Federal Reserve. The Dodd-Frank law instructs the Fed to ensure the fees are “reasonable and proportional” to the cost of processing transactions and in December, the central bank proposed capping the charges at 12 cents a transaction, a reduction of more than 70 per cent.
Jon Tester, a Democratic senator from Montana, has spearheaded an effort to overturn the rule. But his move to delay the implementation by six months gained only 54 votes in the Senate, six short of the super majority needed.
The US move to limit interchange fees comes after similar attempts in Europe. Last year, the European Commission dropped antitrust charges against Visa Europe in return for a commitment to cut the fees to a maximum 0.2 per cent per cross-border transaction. MasterCard has made similar pledges to European authorities.
The Fed now has until July 21 to finalise its rule and can take into account public comments from banks, which have fiercely opposed the fee cap. Retailers, meanwhile, have urged the central bank to retain its price cut.
Both sides have said they are David in a war with Goliath. Retail trade associations say large banks are extorting small stores while banking groups say community banks will lose out to huge retail chains.
“The Senate has essentially said it is fair for one industry to reap what another has sown, and American consumers will now have to pay more for basic banking services, while big-box retailers go off and count their unjustified profits,” said Frank Keating, president of the American Bankers Association. “It is within the Fed’s power to mitigate the disastrous consequences that are sure to come from this policy initiative.”
Matthew Shay, president of the National Retail Foundation, said: “This is a landmark victory for American consumers that will give them the break from skyrocketing swipe fees that they have been seeking for years.”
Banks with less than $10bn in assets are supposed to be exempt from the new rule but banks have argued, with the support of regulators, that market forces will prevail and they will have to comply with the same standards set for the biggest issuers such as Citigroup and Bank of America.
Bank of America shares fell 1 per cent, while Citigroup stock fell 2.1 per cent.
The effort to delay the rule won bipartisan support in a 54-45 vote, with Republicans and Democrats supporting Mr Tester’s bid.
But Senate procedure required 60 votes for the amendment to pass.
Even though it was the biggest bank lobbying issue since last year’s passage of Dodd-Frank, the delay was not opposed by Barney Frank, the senior Democrat on the House financial services committee, who co-authored the law. Mr Frank said it was not a core issue for him and he had no problem with the delay.