The US Senate has voted to give the Federal Reserve powers to regulate debit card interchange fees, handing a victory to merchants in their long-running battle with Visa and MasterCard.
Senators voted 64 - 33 in favour of the amendment offered by Richard Durbin which is designed to reduce the "swipe fees" charged by Visa and MasterCard by asking the Fed to ensure they are "reasonable and proportional".
It also allows merchants to offer discounts for customers to use competing networks and for paying by cash or cheque.
Visa and MasterCard charge interchange fees to cover the cost of processing payments. However Durbin says that, at between one per cent and two per cent of the transaction amount, the fees are far higher than the cost of processing and came to $48 billion in 2008.
Says Durbin: "Passage of this measure gives small businesses and their customers a real chance in the fight against the outrageously high "swipe fees" charged by Visa and MasterCard. It will prevent the giant credit card companies from using anti-competitive practices, allow merchants to offer discounts to their customers and restore common sense and fairness to this broken system."
The news has been welcomed by the National Retail Federation (NRF), Retail Industry Leaders Association and Merchants Payments Coalition.
Mallory Duncan, general counsel, NRF, says: "Main Street America bailed out the biggest banks in this country not so long ago. Passage of the Durbin amendment ensures that those same banks won't repay our generosity by undermining the fairness and integrity of the checking and debit card system."
Durbin says 80% of fees go to the 10 biggest banks and his proposal exempts lenders with assets of less than $10 billion but the amendment still attracted criticism from the Independent Community Bankers of America and the National Association of Federal Credit Unions.
"Sen Durbin's amendment requires the government to regulate debit interchange for the megabanks. That means unregulated community bank cards become the most expensive cards for merchants to accept," says an ICBA statement.