Sen. Tester Amends Swipe Fee Delay Move

WASHINGTON, D.C. -- Two months after proposing the Senate should delay any swipe free reform for two years to further review its impact, Sen. John Tester (D-MT) now contends the legislative body needs 15 months ("bare bones minimum") to study its effects.

According to a press release on the Montana legislator's Web site, Tester cut the needed review period after receiving feedback from his colleagues. He is calling for a delay in any legislation to delay setting swipe fee in order to examine its impact on rural America.

"For me, stopping and studying the unintended consequences of government price-fixing has everything to do with access to capital for small businesses and consumers in rural America," Tester said yesterday in speech on the Senate floor.

"In a matter of weeks, the government is planning to price-fix debit card swipe fees below the cost of doing businesses," said in his remarks before the governing body. "On the surface, the plan might make sense. But peel back the layers, and you'll see why a whole bunch of folks -- on both sides of the aisle -- have raised a flag. Now, I'm not asking to repeal these rules -- or even change them. All I'm asking for is that we take a closer look -- so that we truly understand all impacts, intended and unintended."

Tester's bipartisan proposal to shorten the review timeframe to a little more than a year is supported by Se. Bob Corker (R-Tenn.). In his remarks, Tester outlined how the 15 months would be used effectively.

"Fifteen months will provide the agencies with six months for a study. It will provide the Federal Reserve six months to re-write the rules using that study. And it will allow three months to implement the final rules," Tester explained. "Fifteen months is the bare minimum to get this study right. And we want to get it right."

The Federal Reserve was initially slated to make a decision on the controversial issue -- which pits the retail industry against big financial institutions, such as JPMorgan Chase, MasterCard and Visa -- on April 21. However, Fed Chairman Ben Bernanke said the Fed needed more time. In the past, Bernanke has expressed his own concerns and cited the more than 11,000 commenters who weighed in on the Fed's controversial proposal to rein in the interchange fees. He explained the information provided in those comments is important for assessing the effects of the rule, as CSNews Online reported last month.

And as the issue heats continues to take center stage on both sides of the aisle, a recent theft discovery at Michaels stores has fueled opponents to any swipe fee cap. The craft retailer announced this month that thieves stole debit card data from less than 100 customers by altering the devices used to swipe cards. In response to the news, according to the Wall Street Journal, banks, credit unions and others argue debit interchange caps would prevent their institutions from collecting the revenue necessary to cover fraud costs in situations such as what happened at Michaels.

"This is a prime example of the role that debit interchange plays in ensuring the payment system operates smoothly and efficiently for consumers and financial institutions," wrote Dan Berger, executive vice president at the National Association of Federal Credit Unions, in a letter to senators.

"These issues aren't being dealt with by Michaels. They are being dealt with by the card issuers," Mr. Berger added in an interview.

However, the news outlet reported that retailers are pushing back against that claim, arguing that in many cases banks make merchants cover the cost of fraud incidents. Retailers said they also have invested billions of dollars helping to plug security holes while the banks refuse to take a step that, according to retailers, would make the system far safer: Issuing consumers cards embedded with computer chips, which retailers claim are less vulnerable to fraud than debit cards that require a signature.

"Their argument that they need even more swipe fees to protect the system they're not already protecting is really just a load of bull," said Mallory Duncan, senior vice president and general counsel for the National Retail Federation, a trade group.