Tester confronts cheap swipes

A bipartisan group of legislators led by Montana Sen. Jon Tester last week stirred up a long-standing dispute between credit card companies and retailers over how much banks should be allowed to charge for processing debit card transactions.

Each time a consumer uses a debit card, 44 cents on average goes to the banking industry. In 2009, according to the Federal Reserve, revenue from such transactions totaled $16.2 billion nationwide.

For years, retailers, gas station owners and restaurateurs have said such "interchange fees," or "swipe fees," are disproportionate to the service provided.

"When you boil it down, what gets the ire of the retailers is it's really a risk-free transaction to the bank," says Brad Griffin, president of the Montana Retail Association. "Yet, they're getting paid as if it's a credit transaction, like a credit card."

Congress last year passed legislation limiting swipe fees as it overhauled financial industry regulation. The move prompted the Federal Reserve to cap fees at 12 cents per transaction, a rule slated to take effect in July.

Retailers celebrated the cap. But they grew frustrated last week when Tester and seven other senators introduced legislation aiming to keep it from going into effect for another two years. They argue more time is needed to evaluate how limiting fees will impact consumers and small banks.

When news of the legislation came out, Wall Street watchdogs joined retailers and small businesses in crying foul, contending that Congress is bowing to bankers' interests.

"[Bankers] really turned up that lobbying heat," Griffin says.

Tester, however, disputes charges that he's beholden to the banking industry and cites his congressional record—he voted twice against bank bailouts—when explaining his stance on the swipe fee cap.

"I was concerned it would hurt Montana consumers and small businesses that I represent," he says.

But the Fed's proposed rule excludes banks with less than $10 billion in assets from the 12-cent limit, which is why Griffin believes few, if any, Montana-based banks would be affected by the cap. However, Tester maintains that a two-tiered system won't work.

"Even though the statute calls for an exemption for community banks and credit unions, both Fed Chairman Ben Bernanke and FDIC Chairwoman Sheila Bair have questioned whether there's any way to implement it," Tester says.

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