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Swipe Fees Battle May Move to States

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As the years-long battle over debit card transaction fees draws to a heated close in Washington, lobbyists for retailers are pushing for even greater government protection in several state legislatures.

Senators on Capitol Hill could vote as soon as Wednesday to derail one of retail's major legislative victories — federal limits on how much banks can charge merchants for debit card transactions. So this winter, industry representatives in Minnesota, Maine, Massachusetts and Rhode Island got behind bills that, among other things, would give retailers the authority to pick and choose cards based on the fees they carry.

Retailers say they are trying to make a fundamentally anti-competitive system more fair, but lobbyists for banks and credit card companies say the state bills could essentially shut community banks and credit unions out of the debit card market. They accuse retailers of trying to dodge a provision in the financial regulatory overhaul designed to protect those small institutions.

In last year's financial-reform bill, Congress approved an amendment sponsored by Sen. Dick Durbin (D-Ill.) that would place new limits on the fees that banks can charge merchants when a consumer uses a debit card for a purchase. The provision exempted banks with less than $10 billion in assets from those limits, allowing them to continue to charge higher fees. The carve-out was a crucial element in winning support for the swipe-fee provisions.

"Durbin gets up and says, 'We are trying to protect Main Street banks,' but in the state legislatures, they are trying to do an end-run around the small bank protections," a lobbyist for the credit card industry said.

The state bills, which apply to debit and credit cards, were designed to give retailers more leverage in contracts with electronic payment networks like Visa and MasterCard. Those contracts currently require merchants to accept all cards administered by the financial companies; the state bills would allow them to reject cards with higher fees.

Groups representing retailers in New England said even the Durbin amendment doesn't go far enough.

"Basically, Visa and MasterCard make it all or nothing," Curtis Picard, the director of the Maine Merchants Association, said. "You have to accept all these products if you're going to accept any of their products."

But the state bills, which resemble legislation that stalled in the U.S. House in 2009, have gained little traction. And in Washington, lobbyists for retailers said they are not concerned about being able to choose between banks or products.

"It's not exactly a great win for us if retailers can refuse a high-cost debit card," said David French, the National Retail Federation's top lobbyist. "If a customer only has one card in his wallet, the retailer's options are take a higher-cost credit card or a lost sale."

Still, the credit card industry ­— which, at the same time, is working furiously to delay the new federal swipe fee limits ­— pounced on the state efforts. If retailers can deny cards that cost them more, eventually small banks will have to lower their fees or leave the debit card business altogether, the credit card lobbyist said.

The overwhelming share of swipe-fee revenue goes to big banks. But the financial industry has focused its public relations effort on highlighting the risks to independent banks, shifting attention away from the large institutions.

Unless Congress intervenes, the new national limits on transaction fees are scheduled to go into effect July 21.

The Senate could vote as soon as Wednesday on a measure introduced by Sen. Jon Tester (D-Mont.) that would delay implementation of the fee limits by 15 months. The provision is likely to come up as a rider on one of two noncontroversial bills, according to industry lobbyists. And with lawmakers on both sides of the aisle supporting the delay, the outcome is still very much up for grabs. Majority Leader Harry Reid (D-Nev.) and Durbin oppose the delay, but Sen. Charles Schumer (N.Y.), the chamber's No. 3 Democrat, supports it.

In anticipation of that vote, shopkeepers and bankers of all sizes are blanketing Capitol Hill, while the coalitions representing them run advertisements targeting Senators seeking respite in their home states.

The Electronic Payments Coalition, which represents the nation's largest financial institutions as well as community banks and credit unions, is running television, radio and Internet advertisements in 15 states. The National Retail Federation launched radio spots in Alaska, New Hampshire and West Virginia as well as six other states this week as part of a $1 million campaign to defend the new limits.

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