US Senate votes to curb debit card fees

Federal Reserve will control fees

Both Visa and Mastercard lost their long-running battle with merchants over debit card interchange fees after the US Senate voted to give the Federal Reserve powers to regulate.

With the Federal Reserve curbing the debit-card interchange, both card companies' stock dropped in New York. Visa, the world's biggest payments network, dropped $8.47, or 9.9 percent, to $77.26 at 4:15 p.m. in the New York Stock Exchange composite trading, and has fallen 20 percent from a closing high of $96.59 on 23 April. MasterCard fell 8.6 percent, to $212.45, also sliding 20 percent in three weeks.

Senator Richard Durbin calls for a change in the system

Within the House, Senators voted 64-33, with Senate Majority Whip Richard Durbin calling for the Federal Reserve to ensure the fees charged by Visa and Mastercard are "reasonable and proportional."

Despite both Visa and Mastercard claiming that the intercharge fees covered the cost of payments, Durbin disagreed, explaining that at between one and two percent of the transaction amount, the fees are far higher than the cost of processing and came to $48 billion in 2008.

"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," said Durbin.

Merchants last year paid $19.7 billion in fees tied to debit transactions processed by the two networks, with more than half that amount paid to banks as interchange, according to the National Retail Federation. Other costs include brand-usage, authorization, clearing and settlement fees.

Opposition by Mastercard and Visa

Both Mastercard and Visa were rightly ticked off with the motion, with MasterCard General Counsel Noah Hanft telling Bloomberg via telephone that "It really relates to the ability of an American business to set prices for its products, and that's what really would be taken away here. This is so problematic because it amounts to government intervention into our system of democracy and free enterprise."

Visa said: "We are disappointed that Senator Durbin has decided to force unrelated legislation into the financial reform package at the 11th hour without a hearing or debate," Visa said in a statement. "We're hopeful that when the issue is fully reviewed by members of Congress during the next phase of negotiations, they will conclude the amendment harms consumers, credit unions and community banks and should be eliminated from the bill."

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