Limits on the fees banks charge merchants who accept debit cards would not apply to government-issued cards, under a tentative House-Senate deal aimed at easing worries raised by state treasurers.
The agreement announced Monday softens a Senate provision in a broad financial regulation bill that requires the Federal Reserve to limit the amount banks collect from merchants for every debit card transaction.
Separately, House negotiators tentatively agreed to accept a Senate proposal to set up a consumer financial protection bureau as an independent agency inside the Federal Reserve. The House and the Obama administration had wanted a stand alone agency.
The debit card provision, approved by the Senate last month 64-33, aimed to save retailers billions of dollars in debit card fees. Merchants said the charges resulted in inflated costs to consumers.
Under the tentative deal, the limits would not cover debit cards issued by the federal or state governments, which use the cards for programs such as unemployment or child support payments. Several state treasurers argued that restricting fees paid by merchants could force banks to increase charges for the cards to states.
Merchants typically pay between 1 and 2 percent of a debit card transaction to banks and the credit card networks, mainly Visa and MasterCard. Most of the money goes to the banks.
The agreement requires the Federal Reserve to set limits on those fees, based on what it considers "reasonable and proportional" to the cost to banks. The agreement allows the Fed, in determining the fee amount, to consider the banks' costs of protecting against debit card fraud. The changes also would require the Fed to regulate only the fees set by banks, not by the credit card networks such as Visa and MasterCard. The bulk of the fees are imposed by banks.
The legislation already contains an exclusion for banks with less than $10 billion n assets. But bankers say the exemption doesn't help because small banks would still have to cut their fees to remain competitive.
The deal was struck by Sen. Dick Durbin, D-Ill., lead sponsor of the debit card proposal, and Democratic Reps. Carolyn Maloney and Gregory Meeks of New York, both members of a House-Senate panel working out differences between the two chambers' financial regulation bills. The original House legislation did not contain restrictions on debit card fees.
Banks and credit unions have been battling retailers in a lobbying war over the fees. The Senate's vote to have the Fed set limits caught the financial industry by surprise, adding yet another front to their efforts to soften the bill's impact.
The changes did not satisfy card issuers.
"Despite some improvements, this provision remains a terrible deal for consumers, for lower-income bank customers, for government benefits programs, and for community banks," said Edward Yingling, president and CEO of the American Bankers Association. "The harm is real consumers will see higher costs, basic banking accounts in low-income communities will either be eliminated or involve higher prices, and government programs will cost taxpayers more money, all for the purpose of increasing merchant profits."
The debit card deal is included in a broader House offer to the Senate from Rep. Barney Frank, D-Mass., who is leading the House-Senate effort to assemble a compromise bill.
Frank's offer, which the panel will discuss Tuesday, leaves a consumer bureau inside the Federal Reserve, as provided for in the Senate bill. It calls for auto dealers and pawnbrokers to be exempt from the bureau's regulations and oversight.
The House bill passed in December excluded auto dealers and pawnbrokers, while the Senate's did not.
Auto dealers have argued that while they might assemble loans for car buyers, they do not administer or service the loans.
Frank also proposed to add a provision that would place payday lenders, money remitters, check cashers and firms that provide private student loans under the consumer bureau's supervision. The Senate had called for a study of how the consumer agency could regulate private student loan issuers.
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