The Dodd-Frank financial reforms enacted last year have unleashed lobbying battles on several fronts, but none has been so pitched or costly as the fight over debit card swipe fees.

“It is one of the most active lobbying efforts I have ever seen,” said Senate Majority Whip Dick Durbin, D-Ill., in one of several floor statements assailing a full-court press by banks and credit card companies to repeal a last-minute amendment he inserted into the Wall Street Reform and Consumer Protection Act. (The act is known as the Dodd-Frank law for its lead authors, Rep. Barney Frank, D-Mass., and former Sen. Christopher Dodd, D-Conn.)

Durbin’s amendment caps the debit card fees that banks may charge merchants, requiring such charges to be “reasonable and proportional” to underlying costs. Retailers had long sought limits on these so-called interchange fees, which represent billions in revenue for banks. In the wake of the fiscal crisis, when big banks were in a defensive crouch, Congress embraced the swipe fees cap as a consumer-friendly fix.

But now the banking and card industries, emboldened by their new allies in the GOP-controlled House, and by suggestions that limiting fees could hurt smaller financial institutions, are fighting back hard.

They recently won a small victory on Capitol Hill when a bipartisan group of senators, led by Democrat Jon Tester of Montana, introduced a bill to study the impact of the swipe fee regulation and delay its implementation for two years. A similar bipartisan House bill, authored by Reps. Shelley Moore Capito, R-W.Va., and Debbie Wasserman Schultz, D-Fla., also calls for more study and a one-year delay.

“The entire banking industry is engaged,” said Kenneth Clayton, chief counsel to the American Bankers Association. The ABA sent almost a thousand bankers to meet with lawmakers on Capitol Hill earlier this month to argue that swipe fees will harm smaller banks and that retailers, not consumers, will pocket the savings.

The Dodd-Frank law theoretically exempts institutions with less than $10 million in assets. But Federal Reserve Chairman Ben Bernanke is among those who have said that smaller banks may still feel the pinch in practice. Merchants could simply choose to reject community bank cards that come with higher fees, for example.

Spearheading the campaign for bankers and credit unions is the Electronic Payments Coalition, an umbrella group representing dozens of influential trade associations and card companies, from the National Association of Federal Credit Unions to MasterCard Worldwide and Visa Inc. In addition to Capitol Hill visits, letters, and e-mails, the coalition has organized a high-dollar ad campaign that includes Web, print, broadcast, Metro, and even mobile billboard ads.

For all the banking industry’s firepower, though, retailers who like the law the way it is are remarkably sanguine. They’ve got their own coalition—the Merchants Payments Coalition—which boasts such heavy hitters as the National Retail Federation, the National Grocers Association, and the National Association of Convenience Stores. Their secret weapon is the thousands of local businesses, from restaurants to florists, convenience stores, and bowling alleys, who argue that existing swipe fees mean higher prices for consumers.

“There is some strength in numbers, even if we don’t have the strength in dollars,” said Merchants Payments Coalition counsel Doug Kantor. Earlier this month, convenience store owners orchestrated their own fly-in to Capitol Hill.

Progressive activists such as the U.S. Public Interest Research Group and Americans for Financial Reform, an umbrella group that includes dozens of consumer, labor, and public interest groups, have also made a cause célèbre of putting the lid on swipe fees.

“This is a tough issue for a lot of reasons for members of Congress,” said one lobbyist who opposes the cap on swipe fees. “Number one, it’s complex, and it’s hard to make sure that you get the facts right. Number two, you have constituents on both sides of the issue.”

The lobbying has been “heavy on all sides,” conceded Frank, the ranking Democrat on the House Financial Services Committee. Once banking industry leaders became convinced that the exemption for small banks would not protect them, they “unleashed the community banks and the credit unions, and that’s a lot of muscle,” said Frank. “And that has been transformative.”

Still, Durbin’s passionate defense of the existing law, coupled with his public attacks on big banks, present a considerable hurdle for opponents, banking industry lobbyists concede. Senate Democrats, moreover, have so far signaled little enthusiasm for reopening the financial reform debate. And even Republicans who assailed the financial services reform law on the campaign trail have stopped short of calling for outright repeal of key provisions, such as the creation of a Consumer Financial Protection Bureau.

“What they are proposing is very limited,” Frank said. “So they are implicitly conceding that this is a pretty popular bill.”

Still, expect the lobbying struggle between the titans of retail and banking to intensify in coming weeks. With the financial services law scheduled to take effect on July 21, time is of the essence. Noted Kantor, of the Merchants Payments Coalition: “Once Congress has done something, it is hard to turn it around—especially this fast.”

This article appeared in the Monday, March 28, 2011 edition of National Journal Daily.

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