The formal conference working to reconcile the differences between the recently approved Restoring American Financial Stability Act and the financial regulatory reform legislation—the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173)—the U.S. House of Representatives approved in December 2009 has reached a compromise on the hotly-debated Durbin swipe-fee amendment.

As previously outlined, Sen. Dick Durbin (D-Ill.) introduced an NSBA-supported amendment to the Restoring American Financial Stability Act which would make reasonable and common-sense reforms to the nation’s credit and debit card systems. The amendment eventually was supported by 63 of his colleagues in the U.S. Senate.

The amendment had come under heavy fire in the House, however, as the banking industry and its legions of lobbyists began an all-out assault on the amendment. This is hardly surprising, given that ten issuers raked in more than 80 percent of $48 billion in swipe fees in 2008.

Although the amendment contained a carve-out for small issuers with less than ten billion in assets—exempting 99 percent of all banks, 99 percent of all credit unions, and 97 percent of all thrifts—issuers even were able to persuade community banks and credit unions to fight the amendment.

While the banking industry’s lobbying onslaught was massive, Durbin and the amendment’s other proponents—buoyed from the support of a countless small-business owners and merchants—stood strong and a compromise was reached.

While the conference committee’s swipe-fee compromise is not ideal and painful concessions were made, NSBA stands ready to support it.

• The compromise still directs the Federal Reserve (Fed) to ensure that the swipe fees charged for debit-card transactions are “reasonable and proportional” to the actual costs incurred by the issuer in processing the transaction. The Fed cannot regulate network fees, however. Network fees are the fees that Visa and Mastercard charge that accrue directly to them.
  

• The compromise also exempts two specific kinds of cards from the Fed’s oversight: debit and prepaid cards issued by federal, state and local government programs and re-loadable prepaid cards. To be eligible for this exemption, the government programs and the issuers of the re-loadable prepaid cards must not charge cardholders any overdraft fees or fees for the first monthly in-network ATM withdrawal, after a two-year grace period.
  

• The Fed would have nine months to set the swipe fee limits under the compromise.
  

• The compromise does not contain the Senate-approved provision that would have allowed merchants to offer discounts to customers using lower-fee credit and credit cards. For instance, if Discover charges a merchant a lower interchange rate than Visa, then she could offer her customers a discount for using a Discover card instead of a Visa. This is a significant loss. 
  
  
• The compromise does contain a provision directing the Fed to issues rules preventing cards networks from requiring that their debit cards only can be used on single debit-card network, ensuring that merchants have the choice of at least two networks to run their debit transactions.
   
• The compromise retains the provision allowing merchants to offer discounts for a particular form of payment, i.e. cash, check, debit card, or credit card. The discount must be clearly and conspicuously disclosed and offered to all prospective customers. As noted above, the discounts cannot be based on differing card issuers or card networks, however. This is a critical provision, given that it is 43 times more expensive for a small business to process a $100 debit-card transaction than a traditional paper check. 
   
• The compromise also still allows merchants to set a minimum transaction amount for payment by credit card. The minimum is set at $10 or less, with authority granted to the Fed to increase that amount in the future. Currently, issuers restrict—by threatening exorbitant penalty fees—merchants’ ability to set minimum transaction amounts. This leads many small-business merchants to lose money on small-dollar transactions.
  
  
• The compromise restricts the ability to set maximums for payment by credit card to the Federal government and colleges and universities. 
   
• Finally, the compromise stipulates that regulatory authority under the amendment rests with the Fed and that nothing in the amendment is applicable to the nutrition assistance programs at the U.S. Department of Agriculture, where interchange fees are not charged for electronic benefit transfer (EBT) transactions.

While NSBA deeply regrets the removal of the provision that would have allowed merchants to offer discounts to customers using lower-fee credit and credit cards, it is prepared to support the compromise.

NSBA urges the conference committee, which is poised to consider the issue at any moment, and the full Congress to accept this carefully-crafted compromise and reject any proposed amendments.