WASHINGTON » The Federal Reserve told Congress on Thursday that it may reconsider its proposal to limit the fee that banks charge merchants for debit card transactions to 12 cents per swipe, the latest twist in a battle over billions of dollars.
Fed Governor Sarah Bloom Raskin made the remark at a House hearing at which lawmakers of both parties attacked the Fed’s plan and asked her to reconsider, saying it would batter banks still reeling from the 2008 financial crisis.
At a separate hearing, Fed Chairman Ben Bernanke said the central bank may drop an exemption its proposal would allow for smaller banks because it might leave them charging higher fees, putting them at a competitive disadvantage.
The financial overhaul bill that President Barack Obama and Congress enacted last summer ordered the Fed to issue rules that would set the fees at a reasonable rate. Currently, merchants typically pay between 1 and 2 percent of the transaction’s total and those charges average about 44 cents.
The question of where to set the fees has triggered a lobbying battle pitting merchants and some consumer groups against banks and credit card networks like Visa and Mastercard.
The Fed’s proposed 12-cent cap would be a major victory for merchants, who say higher fees are hurting their businesses and their ability to create jobs. Banks say cutting the fees would cause them to lose money and force them to raise their charges for checking accounts and other services.
Raskin told the House Financial Services Committee’s financial institutions subcommittee that the Fed has received thousands of comments on the proposal and expects many more.
"The other board members and I are reserving judgment on the terms of the final rule until we have an opportunity to consider these comments," she said, citing the complexity of the issue.
The period for reviewing public comments ends next Tuesday. The financial overhaul law requires the Fed to issue final standards by April 21, and they would take effect in July.
The law’s requirement was sponsored by Sen. Richard Durbin, D-Ill., the Senate’s No. 2 Democratic leader, who says the current system is unfair to consumers and merchants.
At Thursday’s hearing, lawmakers of both parties said the Fed has not adequately considered the banks’ and card networks’ costs of fraud prevention in proposing lower fees. They also said the lower fees would especially batter small community banks and credit unions, powerful constituencies in Congress, because larger banks might be able to charge lower fees. The charges are currently mostly uniform.
The Fed’s proposed rule would exempt smaller banks — those with assets below $10 billion — from the lower charges. At the Senate Banking Committee, Bernanke said the exemption may not work because merchants might reject debit cards issued by the smaller banks, since the fees they charge could be higher.
"It may not be the case" that the exemption will be retained in the final rule, he told senators.
Several legislators suggested that the Fed should take more time in issuing its rule.
"We owe it to the American people" to delay the rules, said Rep. David Scott, D-Ga.
Raskin told Scott and other lawmakers that since the deadlines were set by law, only a new law could change them.
Under questioning from lawmakers, Raskin said the Fed was unsure how much of the savings merchants would pass on to consumers should the fees be reduced. She also expressed uncertainty over whether it would cause banks to boost charges for their services.
Capping the fee at 12 cents would cost banks $14 billion, according to testimony by David W. Kemper, representing the American Bankers Association and the smaller Consumer Bankers Association.
Kemper said the subcommittee should "immediately take all necessary congressional action to stop the Federal Reserve" from implementing the proposal.
Doug Kantor, a lawyer representing a coalition of merchants, said that for most merchants the fees trail only labor as their highest operating cost.
"Debit card swipe fees as they exist today cannot be justified. Banks benefit every time a debit card is used," he said in his written statement.
According to a recent Fed survey, debit cards account for 35 percent of noncash payments and are used more often than checks. They have grown from 8 billion payments in 2000 to 38 billion in 2009, and are accepted at 8 million stores.