Bank fight tests Reid’s allegiances

Senate Majority Leader Harry Reid (D-Nev.) is walking a tightrope in the proxy battle between Sens. Dick Durbin and Charles Schumer during one of the year’s biggest special-interest lobbying fights.

Durbin (Ill.), the Senate majority whip and second-ranking Democratic leader, has squared off against Schumer (N.Y.), the Democratic Policy Committee chairman and No. 3 in the Senate Democratic hierarchy, over regulations capping fees that banks charge for debit-card transactions. 

{mosads}Some Senate insiders see the clash over banking rules as a flare-up in the long-running rivalry between Durbin and Schumer, who are contenders to take over as Democratic leader whenever Reid decides to step down.

Reid says he will vote with Durbin, a significant development in a legislative rumble that has spurred retailers and banking interests to spend millions of dollars in lobbying fees and campaign contributions to sway lawmakers.

“He feels it’s unfair to small businesses,” Reid spokesman Jon Summers said of an amendment proposed by Sen. Jon Tester (D-Mont.) that would force the Federal Reserve to delay regulations on debit-card transaction fees that could cost banks as much as $16 billion annually in profits.

His position in the debit-card debate throws the critical mass of the Democratic leadership to Durbin’s side. 

Durbin achieved a major victory in 2010 when he persuaded colleagues to attach to Wall Street reform legislation an amendment directing the Federal Reserve to examine debit-card fees.

Reid has also done Schumer and his allies a big favor by promising a vote on Tester’s controversial amendment, which Durbin wanted to keep off the legislative agenda. 

Banking lobbyists say Tester’s proposal has strong behind-the-scenes support from Schumer, a staunch defender of New York’s financial-services industry.

Reid voted for Durbin’s amendment last year, but that in and of itself didn’t guarantee anything. 

Schumer also voted for Durbin’s amendment last year, but has since praised Tester’s effort to delay rulemaking.

Schumer argues that Congress didn’t study the issue adequately before passing Durbin’s amendment. 

Tester’s staff has touted Reid’s decision to give senators a chance to delay implementation of Durbin’s amendment. “Sen. Tester is grateful that Sen. Reid has agreed to prioritize this vote on the floor,” said Aaron Murphy, Tester’s spokesman. 

Banking lobbyists say it could come up for a vote as soon as next week, during Senate debate of the Patriot Act reauthorization.

They view the Patriot Act as an attractive vehicle because it’s considered must-pass legislation. Democratic leaders hope to push it through the chamber before the Memorial Day recess.

But that plan is already drawing criticism as a clumsy effort to rewrite banking laws through national security legislation.

“That would be a bizarre choice for a legislative vehicle,” said a Senate Democratic aide. “It would raise serious germaneness questions, to say nothing of playing politics with national security.”

There aren’t many options left. The Fed will finalize its rules by July 21, and any proposal to delay them must pass both chambers and receive President Obama’s signature before then.

Durbin adamantly opposes Tester’s proposal, which would undermine one of his biggest legislative accomplishments.

As a result of Durbin’s amendment, the Fed decided to limit these so-called swipe fees to 12 cents per transaction, substantially less than the 44 cents banks have charged on average for such transactions.

Securing Reid’s support is an important win for Durbin and will make it more difficult for banking lobbyists to cajole Democrats to switch sides on the contentious issue. “It’s certainly been helpful,” Brian Dodge said of Reid’s position. Dodge is senior vice president at the Retail Industry Leaders Association, which opposes the Tester amendment.

Sen. Ben Nelson (Neb.) is the only Democrat who voted for Durbin’s amendment last year and now officially endorses Tester’s call to delay its effect. (Schumer has stopped short of pledging to vote for it.)

Durbin and his allies are wary about other defections. “The campaign waged by reform opponents has been extremely aggressive. We haven’t taken a single vote for granted,” Dodge said. 

Banking lobbyists say other Democrats would be willing to support delaying the Fed’s action but have kept their heads down to avert a public clash with Durbin and risk criticism for modifying positions they took last year. 

One Senate aide said Tester is only a handful of votes short of securing passage. Another aide said Tester declined to offer the amendment to the recently pending small-business legislation because he did not have 60 votes as of a few weeks ago.

Tester, however, is sticking to his claim, made last month, that he will have enough votes to defeat Durbin. “Sen. Tester is confident he will have the 60 votes he needs when the vote happens,” said Murphy, Tester’s spokesman. 

One lobbyist representing the banking industry said he and his colleagues would have had an easier time rounding up Republican votes if a Democrat other than Tester sponsored the measure.

“There are people holding back because it’s his amendment and they don’t want to give him a huge win. If this were a Coons amendment or someone like that, you might have less reluctance on the Republican side,” said the lobbyist, in reference to Sen. Chris Coons (D-Del.), who doesn’t face reelection until 2014. Tester faces one of the toughest reelections in the Senate next year. 

Correction: An earlier version of this story misstated the year Sen. Coons faces reelection.