Debit swipe fees: Barney Frank opposes the Fed's proposed limit.

Debit swipe fees: Barney Frank opposes the Fed's proposed limit.

Debit swipe fees: Barney Frank opposes the Fed's proposed limit.

How to protect your pockets.
March 10 2011 6:46 PM

Frankly Baffling

Barney Frank's odd resistance to the Fed's debit-swipe rule.

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The banks' screaming and yelling appears to be having some effect. Fed Chairman Ben Bernanke and Fed Governor Sarah Bloom Raskin last month signaled to the House Financial Services Committee that they might water down the Fed regulation when it's issued in final form in April. More surprisingly, Rep. Barney Frank has signaled that he'd support legislation to weaken the requirement laid down in the financial-reform law that bears his name.

Frank never liked the law's restriction on debit swipe fees, which was inserted into the bill at the instigation of Sen. Dick Durbin, D.-Ill. When I phoned him to ask why, he said: "This has never been on the agenda of the consumer groups. I regard it as a dispute between two groups of business people. … The notion that retail prices will fall if this changes is not persuasive to me." He may be right that consumer groups didn't flag the issue when the bill was being written, but in December, when I phoned the Consumer Federation of America to inquire about the issue, a staffer there instantly referred me to David Balto, a fellow at the Center for American Progress, a liberal think tank. Balto has quite a lot to say about the issue, which he discussed with the Fed before it proposed its rule.

"Have you spoken to Elizabeth Warren?" Frank asked. "She told me she doesn't think this is a consumer issue." That surprised me. It's possible Warren doesn't want to get involved because the office of which she's unofficial director, the Consumer Financial Protection Bureau, won't have any oversight anyway. But the CFPB isn't going to have oversight over anything until July. Meanwhile, Warren has been offering advice on all sorts of consumer-related matters to the White House and to other agencies. I phoned the CFPB and was told Warren declined to comment.

Frank said he would be willing to support an upper limit on debit swipe fees, but that the limit should be based on better information about precisely what it costs the banks to process debit-card purchases. "We should give the Fed the flexibility to set it in what they think is economically the right place," he told me. That seemed reasonable until I looked at the statute and saw that it already says that: "The amount of any interchange transaction fee that an issuer may receive or charge with respect to an electronic debit transaction shall be reasonable and proportional to the cost incurred by the issuer with respect to the transaction."


The law then goes on to say that the Fed has nine months to decide what "reasonable and proportional to the cost" actually means. Maybe Frank thinks nine months wasn't enough time to find out. I didn't think to ask him. The mystery remains unsolved.