Merchants Will Accept Small-Issuer Debit Cards Post-Durbin, Advocate Says

Merchant groups on Monday sought to assure Congress that they won't reject small debit card issuers' cards once the so-called Durbin Amendment makes large issuers' debit cards much cheaper to accept.

“If merchants didn't accept the card, they would risk losing the sale and losing the customer; a risk very few in the competitive retail industry are willing to take,” says a letter from the Merchants Payments Coalition to Congress.

The MPC is a Washington, D.C.-based lobbying group pushing for lower payment card acceptance costs. The letter, addressed to U.S. Rep. Shelley Moore Capito, R-WVa., but copied to all members of Congress as well as the Federal Reserve Board, lists 20 trade associations as signers, including the National Retail Federation, the National Restaurant Association, and the National Association of Convenience Stores. Capito is sponsoring a bill in the House of Representatives that would delay the Durbin Amendment's effective date for a year while federal banking regulators study its possible effects.

The Federal Reserve is preparing rules to implement the amendment, which on July 21 will impose severe interchange cuts on the 131 issuers with more than $10 billion in assets. The Fed, which delayed issuing its final regulations last month to digest the huge volume of comments its preliminary rules received, is mulling caps of 7 to 12 cents per transaction, caps that would cut large issuers' debit revenues by 70% or more.

The Durbin Amendment's passage last year as part of the Dodd-Frank financial-reform law represented a rare victory by retailing and consumer interests over the powerful bank lobby. But in 2011, banks and their payment card network allies have been rebounding politically and are marshalling support for bills to delay the amendment's implementation. One argument they're postulating is that Durbin's small-issuer exemption won't work, in part because merchants will have an economic incentive to steer customers away from using debit cards from such issuers.

The MPC, however, said that both Visa and MasterCard have an “honor-all-cards” rule that requires merchants to accept all of their debit cards, regardless of issuer. “We risk the threat of $5,000 per day fines – or higher – if we break this rule, so we assure you that merchants have no intention of violating this term of brand acceptance. These rules also prevent merchants from pricing goods differently based upon the financial institution that issued the card.” The letter went on to note that merchants have no practical way at the point of sale to distinguish debit cards by size of issuer.

Mitch Goldstone, president and chief executive of ScanMyPhotos.com in Irvine and sponsor of the WayTooHigh.com anti-interchange Web site, tells Digital Transactions News that as an owner of an e-commerce business, he can't discern the issuers of bank cards his customers use. And, regarding point-of-sale purchases, “The last thing a harried sales clerk wants to deal with is telling a customer to use a certain card,” he says.

U.S. Sen. Jon Tester, D-Mont., on March 15 introduced S.575, a bill that would delay the Durbin Amendment's implementation for two years while regulators study its potential effects. Tester is trying to get 60 votes in the Senate, where Democrats are in the majority, in order to prevent opponents from killing his bill through unlimited debate, according to reports from Capitol Hill. The bill, which has 16 co-sponsors, is pending in the Senate's Banking, Housing, and Urban Affairs Committee but reportedly could come up for a vote soon. Tester will need to overcome the opposition of supporters of No. 2 Senate Democrat and Durbin Amendment chief sponsor Richard Durbin of Illinois, who has staunchly defended his measure.

In promoting his two-year delay, Tester referred to comments Federal Reserve Chairman Ben S. Bernanke made to the Senate in February, in which he raised the specter that the small-issuer exemption could prove ineffective. Many small banks and credit unions have gone on record against the amendment, saying that market forces eventually will drive down their interchange revenues. The latest interchange schedules from Visa Inc. and MasterCard Inc. keep debit interchange rates the same as in 2010, but the networks could revise them as soon as next autumn.

In the Republican-controlled House, Capito's bill, H.R. 1081, has 89 co-sponsors and is pending in the House Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit.