Sunday, March 27, 2011

Interchange Under Attack

In general, I'm not concerned about the GOP's efforts to roll back financial reform. House Republicans can pass all the bills they want; they're not going to get a vote in the Senate.

However, the one aspect of financial reform that I think could legitimately be rolled back is interchange (a.k.a., the Durbin amendment), which is unfortunate, because I still haven't heard a single legitimate argument against it. The problem is that the Durbin amendment has a ridiculously powerful coalition lined up against it — the community banks, credit unions, and, apparently, the teachers' unions. And yes, the big commercial banks too, although (a) it's the community banks who are driving the anti-Durbin movement, and who could put it over the top, and (b) the big banks' power in Congress is wildly, absurdly overrated anyway. As Barney Frank said recently regarding the fight over rolling back the Durbin amendment: "The lobbying power doesn't come from the big banks. The community banks beat the big banks." Of course, the opposition from JPMorgan/Wells Fargo/BofA is certainly still a factor — mostly what they can bring is a certain professionalization to the lobbying effort.

The community banks and credit unions are so powerful because they're in every member's district, they usually give to politicians' campaigns, and they tend to be very involved in local society. Those are the kinds of traits that command a Congressman's attention. And right now, the community banks, credit unions, and big commercial banks are screaming to their Congressmen and Senators about interchange. These kinds of measures need to gather a bit of momentum in Congress to have a chance, and I definitely get the sense that the momentum for rolling back the Durbin amendment is building.

On March 15, Sen. Jon Tester (D-MT) introduced the "Debit Interchange Fee Study Act of 2011," which delays the implementation of the interchange rules until July 21, 2012, expressly voids the Fed's proposed interchange rules, and directs the Fed, OCC, FDIC, and the National Credit Union Administration (NCUA) to conduct a study on a parade of horribles that might result from an interchange fee cap. It's a decidedly unsubtle message ("do NOT do through with this!"), and one that regulators aren't likely to ignore. For all intents and purposes, it would kill the Durbin amendment. Tester's amendment is also co-sponsored by 6 Democrats and 7 Republicans, giving it the all-important "bipartisan" label. (At the very least, it guarantees that the Washington Post editorial page will support the bill.)

On the other side of the fight, the main interest group supporting the Durbin amendment — namely, the merchants — is, I fear, too loosely organized, or simply not powerful enough, to win this kind of low-profile battle. A couple of merchant groups are already attacking Tester for his bill, but (a) it's too early in the electoral cycle for the attack ads to have much of an effect, and (b) Tester's in for a bitter re-election fight no matter what, so the fact that someone is running attack ads isn't likely to scare him.

The primary obstacle to rolling back the Durbin amendment is, I suppose not surprinsgly, Sen. Durbin himself. Durbin is the second-ranking member of the Senate, so he's got significant clout, especially among Democrats. Will Durbin be able to prevent Tester's bill from coming up for a vote until July 21, the date that Dodd-Frank requires the interchange rules to take effect? Maybe. He likely won't get any help in committee though, since the Chairman of the Senate Banking Committee is now Tim Johnson, who's from a very bank-friendly state (South Dakota), and is sometimes referred to as "the Senator from Citibank." Not surprisingly, Johnson voted against the Durbin amendment the first time around.

Durbin has promised that he'll make sure Tester's bill will need 60 votes to pass, and I think he'll be able probably be able to keep that promise. Whether Durbin can win that vote is another matter, because, again, he's battling a ridiculously powerful coalition in the community banks, credit unions, teachers' unions, and the big commercial banks. I've been tracking this issue pretty closely, and while my gut sense is that Durbin will be able to hold the line with wavering Democrats, I'm not particularly confident about that.

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