Analysis: What's Next After Failure to Kill Swipe Fee Reform?

WASHINGTON, D.C. -- Yesterday's defeat of the Tester amendment to delay implementation of swipe fee reform was a huge victory for retailers and consumers. Because such a huge percentage of their sales comes from low-margin fuel purchases that are predominately paid for with plastic, convenience store and petroleum retailers stand to benefit greatly. Consumers, too, will benefit when the competitive realities of the marketplace allow retailers to pass the savings on through lower prices.

However, it's still too soon to throw any victory parties.

In the aftermath of yesterday's celebration, NACS, which has been at the forefront of the fight against swipe fees, pointed out "plenty of work remains." The failure of the Tester Amendment means that the Durbin Amendment remains the law of the land. Any day now, the board of the Federal Reserve will issue final regulations establishing standards for ensuring that the amount of any interchange transaction fee is "reasonable and proportional" to the cost incurred by the card issuer to authorize and complete any particular electronic debit transaction. The final regulations are due to go into effect July 21.

The big banking industry, though, will not take this lying down. Although the Federal Reserve issued proposed rules last December, the final regulations have been held back. Banking industry lobbyists have had plenty of time to write letters to the board criticizing the proposed rules and suggesting changes.

A litigator, writing on the website, www.pymnts.com, provides some clue to the banking industry's next steps. "Even assuming the existence of a final set of rules simply raises another question -- what then?" wrote Samuel Zun of a San Francisco law firm. "The lawyer's answer to that question is frequently and, in this case, appropriately, 'take 'em to court.'"

So, if the Federal Reserve Board's final rules don't please the banking industry, we can be pretty sure that this whole thing will be headed to court.

NACS chairman Jeff Miller, who is also president of Norfolk, Va.-based Miller Oil Co., pointed out that the battle is far from over. "The Federal Reserve's proposed rules would still allow banks to make a reasonable, if not sizable, profit on debit transaction," Miller said. "A survey of banks by the Fed found that debit swipe fee costs averaged around 4 cents per transaction, and the final rules are expected to set rates at least 300 percent above that rate -- a profit margin that is unimaginable in our industry, which saw overall pretax profits of 1.1 percent in 2010."

Miller acknowledged that yesterdays' vote "remains the last hurdle for implementation of debit swipe fee reform."

However, he added, "We will work with the Federal Reserve and Congress to ensure that this remains a win for consumers, and we will continue to push for other reforms in our payments system."