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Financial Services: Swipe Fee Sweepstakes

Retailers Savor Their Defense Against a Lobbying Assault by the Banks

Matthew Staver/Bloomberg
Lobbyists for bankers and retailers battled over setting limits on fees collected by banks whenever a debit card is swiped.

The nation’s retailers won one of their biggest and most surprising victories in decades back in May 2010. That was when the Senate voted overwhelmingly and with hardly any advance notice to curb what banks take every time one of their debit cards gets used — pennies from consumer pockets that the store owners say properly belong in their cash registers. When the language, which instructed the Federal Reserve to set lower limits for these so-called swipe fees, made it into the financial services regulatory rewrite signed by President Obama in July, champagne corks popped at the National Retail Federation’s headquarters, situated just around the corner from the National Archives.

But things had turned somber in those offices by the start of this year, when it became clear that the retailers would not be able to actually realize their victory without first winning another congressional lobbying battle — one proving much more intense, expensive, long-lasting and highly publicized than the one before.

The reason is that the nation’s banks were mobilizing a multi-million-dollar lobbying effort to thwart, or at least significantly delay, the regulations proposed in December by the Fed: a fee of no more than 12 cents on any transaction, down from an average of 44 cents, a dramatic reduction that would mean about $1 billion in lost revenue for banks every month.

With so much money at stake, the two well-heeled industries spared no expense to make their cases — directly to lawmakers as well as to their constituents — in hopes that public pressure would sway the outcome. But in the end, the side that was playing defense won the biggest domestic policy lobbying battle so far this year.

The retailers warded off an all-out assault by the bankers leading up to the climactic vote two weeks ago, which was once again in the Senate. Only a dozen Republicans and 33 members of the Democratic Caucus sided with the retailers this time, meaning 19 fewer votes than in their victory the year before — but that was a sufficient number, thanks to the chamber’s default practice of requiring 60 votes to do much of anything. The bankers, who wanted a year of delay and study, got the support of 19 Democrats and 35 Republicans.

The way the two sides split the votes of the two caucuses was a clear reflection of how troubled so many senators were with the prospect of angering an important engine of the American economy and a crucial group of big money donors, no matter which way they voted.

“I know a number of people want to vote and get this behind them,” said Bob Corker , the Tennessee Republican who led the campaign on behalf of the banks along with Montana Democrat Jon Tester. “You feel like in some way you’re trying to deal, you know, you’re trying to pick between friends,” Corker said.

Because the battle climaxed only this month, a final accounting cannot yet be made. But a conservative estimate is that the two sides combined to spend tens of millions of dollars on lobbying and public relations campaigns.

“You’re talking about significant amounts,” said Brian Gardner, a financial services industry analyst at the investment bank Keefe, Bruyette & Woods. “Any time government is picking winners and losers, you’re going to have a major battle, and this is one of them.”

Advertising Blitz

The financial services industry blanketed the Beltway’s airwaves and Metro trains with advertising and packed the halls of Congress with its supporters. Their central argument was that the new limits on transaction fees would actually harm consumers: Financial institutions would be compelled to make up lost revenue by eliminating free checking, raising the cost of debit card use and even limiting to as little as $50 the amount that consumers could charge in a single debit card purchase.

“It’s not easy managing the day and making ends meet,” says an actor portraying a grocery-juggling mother in a commercial that aired frequently on Washington television in the days leading up to the vote. “Now I read that using my debit card, which is so convenient, could become restricted and cost more, because Congress just gave giant retailers a $12 billion payday. I wonder who’s left holding the bag.”

The advertisement was paid for by the Electronic Payments Coalition, which was assembled for the campaign by, among others, the American Bankers Association, the Credit Union National Association, the Independent Community Bankers of America and the National Association of Federal Credit Unions. Also involved in the campaign were Visa Inc. and MasterCard Inc., the companies that run the networks that facilitate the electronic transfer of money between the retailers and the banks that issue debit cards.

The coalition began running television, radio, online, print and mass transit ads in February. Residents in Washington and roughly 25 other states represented by swing-vote senators were subject to heavy exposure, according to Trish Wexler, a spokesperson for the coalition, but she declined to say how much was spent on the advertising.

Equally impressive was the number of boots on the ground deployed by the different trade associations.

Pat Keefe, an official with the Credit Union National Association, estimates that her group got about half a million credit union customers to telephone or write to lawmakers starting in March. Another 4,000 knocked on doors on Capitol Hill that month as part of a conference.

Aleis Stokes, a vice president at the Independent Community Bankers of America, says community bankers, their employees and customers sent out tens of thousands of calls and emails.

Smaller credit unions and community banks were often a main focus of the debate; opponents of lowering the swipe fees said that lost revenue will affect them disproportionately because the money from those transactions makes up a larger share of their revenue than it does for the big banks, which offer a more diversified portfolio of services. (For each customer’s swipe of a debit card, banks charge retailers roughly 1 percent of the purchase price. Merchants have long argued that the banks have been taking an outsized cut of their sales.)

Supporters of the new restrictions argued that the largest banks are the main force behind the campaign and were hiding behind the smaller institutions. In one floor speech, the leader of the campaign to lower the fees — the majority whip, Democrat Richard J. Durbin of Illinois — accused credit unions and community banks of serving as “beards” for the credit card companies and the largest banks.

The big banks, in turn, said that their rivals were similarly using arguments in support of the little guy — the mom-and-pop shop­keepers and restaurateurs — to advance the cause of the large and better-financed retailers such as Target, Home Depot and Walmart.

The National Retail Federation, National Grocers Association and many other advocates for businesses banded together to form the Merchants Payment Coalition, which says it made tens of thousands of contacts with members of Congress — including dispatching several hundred business owners to make in-person appeals to their senators and House members.

“We’re going to raise the volume over the next 60 days,” the federation’s top lobbyist, David French, said as his side geared up in the spring with its own print and radio ads and grass-roots efforts. He said the advertising budget was well into the seven figures, but nowhere near what the banks were spending.

Banks Fall Short

Tester and Corker had always faced an uphill battle, working against a relatively tight deadline and a crowded Senate schedule while trying to persuade at least 60 senators to undo — at least temporarily — something they had done only a year earlier. Still, a large number of senators remained uncommitted, at least publicly.

In early May, Tester sought to offer his proposal as an amendment to a small-business programs reauthorization, but the measure was pulled off the floor (because so many other senators were out to offer similarly unrelated proposals and amendments) before he could do so. Later in the month, Majority Leader Harry Reid promised a vote on the matter to Tester — who faces an intense campaign as he seeks a second term next year against Montana’s only House member, Republican Denny Rehberg.

To appeal to the undecided, Tester and Corker revised their proposal twice. In hopes of bringing wavering colleagues on board, they started out trying for a delay of 24 months, then shortened that time frame to 15 months, and then again, to 12 months. And to suggest that the tide was moving their way, the principal sponsors rolled out the names of three colleagues — Democrats Kay Hagan of North Carolina and Michael Bennet of Colorado, plus Republican Michael Crapo of Idaho — who had agreed to switch sides and support the bankers this time.

In the days before the vote, industry lobbyists swarmed the Capitol. “It was an absolute onslaught,” said Katherine Lugar, a lobbyist for the Retail Industry Leaders Association. “Everyone was up there trying to get their final word in.”

Alaska Democrat Mark Begich convened what was described as a “cage match” on the morning of the June 8 vote, inviting both bankers and retailers to face off in his office. Begich was among 11 senators to switch to the bankers, and they were able to win the votes of 16 of the 17 freshmen, but it was not enough. The retailers’ goal-line stand had succeeded, and their victory will stand at least through the next election.

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