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Utah banks and credit unions are locked in an angry dispute with retailers concerning their support of a proposed rule capping debit card transaction fees at levels that could force financial firms to end free checking and raise the cost of other services.
On Monday, the Utah Food Industry Association, Retail Merchants Association and Petroleum Marketers and Retailers Association bought ads in The Salt Lake Tribune and the Deseret News that criticized bipartisan legislation co-sponsored by U.S. Sen. Mike Lee, R-Utah, seeking to delay for up to two years the Federal Reserve's regulation of fees banks charge retailers for processing debit card purchases.
The Utah Bankers Association and the Utah Credit Union Association fired back Tuesday, saying Lee's bill is necessary to delay the regulation of "interchange" fees for two years while the Fed and other regulators study their impact on consumers, debit card issuers, merchants and financial institutions.
The caps, said Howard Headlee, who runs the bankers association, amount to a "windfall" for retailers, while shifting most of the cost of fraud prevention and maintaining the worldwide debit card payment system to financial firms.
"It can mean big money for [retailers]. Home Depot has estimated that this will improve their bottom line" by $35 million, said Zions Bank chief executive officer Scott Anderson.
Anderson said the average fee for a $40 transaction is about 40 cents. If the caps go into effect in July, the fee would go down 90 percent.
The leaders of the three groups that bought the full-page ads deny the caps will line the pockets of U.S. merchants. Transaction fees are second only to retailers' labor costs, caused largely by a 300 percent increase in fee expenses in the past decade.
"Retailers may want to keep some of the fees, but someone in the market is going to go lower on price, and, eventually, all of this will be pushed back to consumers," said Dave Davis, president of the retail-merchants and food-industry associations.
Said John Hill, executive director of the petroleum marketers and retailers group, "The banks are making more money on the sale of gasoline than the retailers do because of the high interchange rates that they charge."
Headlee said lobbyists for the retail industry managed to persuade U.S. Sen. Dick Durbin, D-Ill., to attach an amendment to the massive Dodd-Frank Wall Street reform bill shortly before the Senate passed it last year. The Durbin amendment was inserted without any public hearings, he said.
The bill went back to the House, where Rep. Barney Frank, D-Mass., who co-sponsored the Dodd-Frank legislation, opposed the amendment, saying regulations limiting interchange fees could increase regulatory burdens on credit unions and other small financial institutions.
"The Senate, while we were doing financial reform, added something that I don't think is really financial reform, nor really a consumer activity. We had to do that to get the bill through. And that was to legislate restrictions on what the credit card companies can charge to the merchants,'' Frank said in an interview with CNBC in December.
The full-page ads in The Tribune and the News accuse Lee of reversing his stance on "crony capitalism" and Wall Street bailouts. During his senatorial campaign, Lee said he wouldn't have voted for the 2008 Troubled Asset Relief Program to inject fresh capital into banks, the ad said.
Now, the ad says, "Mike Lee co-sponsored a bill that would help big TARP banks protect their debit card swipe fee heist. Another big TARP bailout!"
Lee was unavailable for comment Wednesday. Earlier this week, he said the bill has nothing to do with TARP or bank bailouts.
"It does, however, delay the creation of price controls which are inherently anti-free market," Lee said in a statement emailed to The Tribune on Monday.
Under the rule the bankers seek to delay, transaction fees on debit card transactions would be capped at 12 cents each, down from an average of 44 cents.
Anderson said such sharp cuts would cost Zions $24 million a year, undermine its efforts to prevent fraud and erode the banking industry's capacity to improve the debit card purchasing system.
"The profits that come in from these interchange fees have funded services for low-income, almost unbankable, people," Anderson said.
In Utah, banks and credit unions don't always get along. They put aside their differences, however, to jointly oppose the amendment and call for further study.
"This cuts into us in a dramatic way," said Scott Simpson, CEO of the Utah Credit Union Association.
Nor are consumer groups usually on the side of financial firms.
This time, though, groups such as the National Association for the Advancement of Colored People and the National Community Reinvestment Coalition have publicly opposed the amendment.
What's at stake
Under the rule the bankers seek to delay and retailers want enacted, transaction fees on debit cards would be capped at 12 cents each, down from an average of 44 cents, which could cost each side billions.