A Fed swing at swipe fees

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Oct 25, 2023 View in browser   By Zachary Warmbrodt and Sam Sutton Presented by Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. QUICK FIX The Federal Reserve is about to escalate the Washington holy war between banks and retailers. The Fed this afternoon is expected to propose a rule that could end up lowering the federal cap on debit card swipe fees – a move that would impact billions of dollars that banks collect and give financial relief to merchants who pay the charges. The proposal, the first change to the cap since the Fed first imposed it in 2011, is sure to kick off a fierce – and what may be lengthy — lobbying campaign. Lobbyists are bracing for litigation over how it pans out. On Friday, the American Bankers Association and eight other banking and credit union trade groups sent a letter urging the Fed to leave the so-called debit interchange cap intact and to not be “misled” by merchant talking points. The banks said the Fed is under no obligation to act based on the demands of retailers. “This is going to take probably a year or two,” Retail Industry Leaders Association executive vice president Austen Jensen told MM. The Fed is revisiting the cap after its surveys showed evidence that costs for debit card issuers have fallen over several years. The banking industry argues that the Fed’s surveys haven’t captured the full picture of increases in fraud and operational costs. The existing cap is set at 21 cents plus 0.05 percent of the transaction, which merchants pay with every card swipe. Retailers have been ratcheting up pressure on the Fed to take another crack at debit fees, including a legal challenge that’s pending in the Supreme Court. They’ve also been lobbying Congress to take on credit card fees next. Sen. Dick Durbin (D-Ill.), who spearheaded the law that gave the Fed its debit authorities in 2010, is also leading on credit cards. It comes as banks are facing a barrage of other regulatory changes, including proposals to hike capital requirements for the largest lenders and a revamp of rules designed to encourage lending in low-income areas. While big banks and small banks are sometimes at odds over looming regulations, debit fees are proving to be a unifying force. Small banks and credit unions are exempt from the debit swipe fee cap, but contend that they’ve still felt the impact. “We urge you to ‘stop, look, and listen,’” banking groups told the Fed Friday. Happy Wednesday — What’s your take on the Fed’s debit fee proposal? Send thoughts and rants: zwarmbrodt@politico.com.   A message from Electronic Payments Coalition: Don’t Let Durbin-Marshall Steal YOUR Data: Senators Dick Durbin and Roger Marshall introduced legislation allowing big-box retailers like Walmart and Target to process credit card transactions based solely on what is cheapest for them, disregarding YOUR data security. Durbin-Marshall would shift billions in consumer spending to higher-risk payment networks, weakening America’s payment system and putting consumers in a vulnerable position. Last year, Congress wisely rejected a similar Durbin-Marshall bill, and they must do so again.   Driving the day SEC Chair Gary Gensler and enforcement director Gurbir Grewal speak at the Securities Docket’s 2023 Enforcement Forum … House Financial Services holds subcommittee hearings on fintech and Iran sanctions … The Fed board proposes debit fee changes at 1 p.m. A new pick for speaker — Republicans late Tuesday picked Rep. Mike Johnson as their next speaker nominee, hours after Rep. Tom Emmer withdrew from the race. Emmer’s fall may come as a relief to watchdogs who warned that his embrace of crypto — and fight against federal oversight — posed a risk to consumers. “Representative Emmer represents a profound threat to American financial security,” Revolving Door Project Executive Director Jeff Hauser said in a statement. What’s in Biden’s funding request — The White House is expected to release the details of its $50 billion supplemental funding request Wednesday, four people familiar with the plan told our Adam Cancryn and Eleanor Mueller. The people cautioned that the package is not yet final and could still change. It’s expected to include money for child care, a broadband program and disaster aid. One person familiar with the request said the child care request will be in the vicinity of the $16 billion that the industry has warned is needed to avoid mass closures. The White House declined to comment. Banks will have to rethink low-income lending — Regulators finalized the most significant overhaul of anti-redlining rules in nearly three decades, with new requirements for banks to lend in lower-income communities, Katy O’Donnell reports. The changes, which will go into effect starting in January 2026, will push banks to lend more in areas where they have a concentration of mortgage and small-business loans rather than just where they have physical branches. It's an update for the era of online banking. “With today’s rule, we have a once in a generation opportunity to make meaningful steps toward ending redlining and its present-day manifestation,” Rep. Maxine Waters (D-Calif.) said in a statement. Rep. Andy Barr of Kentucky, who leads oversight of bank regulation for Republicans, said the rule is “under analyzed, not forward-looking and will only lock in the status quo.” “By micromanaging how banks should operate, it runs a high risk of reducing credit availability to underserved communities and harms the customers and communities that the CRA was intended to protect,” he said.   WSF 2023 will discuss ‘Mastering the New Economy’, examining the ways in which business and society can thrive despite current economic and environmental challenges. The conference will gather 100+ speakers from companies including Volkswagen, Siemens and C3.ai, as well as U.S. Senator for Tennessee Bill Hagerty; Florida’s Chief Financial Officer Jimmy Patronis; Former President of Colombia Iván Duque Márquez and Former President of Ecuador Jamil Mahuad. Learn more and register now at www.worldstrategicforum.com.     On the Hill McHenry presses Treasury for Iran records — House Financial Services Republicans are demanding that the Biden administration release records related to Iranian assets the U.S. unlocked as part of a prisoner swap last month, Jasper Goodman reports. Chair Patrick McHenry and Reps. Bill Huizenga and Blaine Luetkemeyer asked Treasury Secretary Janet Yellen to turn over information including a list of financial institutions involved in the transactions and the terms of the agreement.   A message from Electronic Payments Coalition:   Economy Europe done with rate hikes? — The European Central Bank is set to end a year-long run of interest rates increases Thursday and begin a pause that's expected to stretch into next year, per Johanna Treeck in Frankfurt. UAW expands strike — Five thousand unionized workers walked out of one of General Motors’ largest and most profitable factories, marking the second straight day of escalation by the UAW, per WSJ. Regulatory Corner Bank regulators approve climate guidance — The Fed, FDIC and OCC finalized guidance for how large banks should manage climate-related financial risks, Allison Prang reports. BlackRock settles SEC charges — The SEC dinged BlackRock for allegedly describing Aviron Group — a film distribution company that its Multi-Sector Income Trust was invested in — as a diversified financial services company in filings with the agency, despite the fact that the company “was neither diversified nor a financial services firm.” BlackRock will pay $2.5 million to settle the charges, Declan Harty reports. BlackRock self-reported the “inadvertent reporting errors” after finding fraud by an Aviron executive, a spokesperson said.   PLAYBOOK IS GOING GLOBAL! We’re excited to introduce Global Playbook, POLITICO’s premier newsletter that brings you inside the most important conversations at the most influential events in the world. From the buzzy echoes emanating from the snowy peaks at the WEF in Davos to the discussions and personalities at Milken Global in Beverly Hills, to the heart of diplomacy at UNGA in New York City – author Suzanne Lynch brings it all to your fingertips. Experience the elite. Witness the influential. And never miss a global beat. BE PART OF THE CONVERSATION. SUBSCRIBE NOW.     Fly Around SMBC staffs up — Sumitomo Mitsui Banking Corp. is opening a Washington office. SMBC has hired former Credit Suisse head of U.S. public policy Randy Ross as its head of government affairs and public policy and Althea Pieters, also formerly of Credit Suisse, as head of regulatory strategy. They will be joined by Kazuhiro Yoshimi, executive director of government and regulatory affairs, and Kevin Parker, vice president of government and regulatory affairs. Small business lending — Goldman Sachs is out with a new survey today showing that 78 percent of small business owners are concerned about their access to capital and 29 percent say they can’t afford to take out a loan given current interest rates.   A message from Electronic Payments Coalition: CONGRESS: Don’t Let Durbin-Marshall Steal YOUR Data: Cyber-attacks against consumers are on the rise, with large retailers like Target falling victim to breaches that expose customer information to hackers and foreign countries. Now, mega-retailers like Walmart and Target want to leave you even more vulnerable to credit card cyber-attacks so they can pocket billions of dollars in additional profits. After Senator Dick Durbin passed similar routing mandates for debit cards in 2010, the fraud rate for debit cards increased by NEARLY 60%. A similar outcome for credit cards would likely cost OVER $6 BILLION in additional fraud and likely require passing much of the bill onto consumers. Last year, Congress wisely rejected a similar Durbin-Marshall bill, and they should do so again. Congress must protect consumers, preserve the integrity of the payment ecosystem, and reject this detrimental and unnecessary government intervention into the U.S. payment system.     Follow us on Twitter Mark McQuillan @mcqdc Zachary Warmbrodt @Zachary Victoria Guida @vtg2 Declan Harty @ @declanharty Eleanor Mueller @eleanor_mueller Katy O'Donnell @katyodonnell_ Sam Sutton @samjsutton   Follow us

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