The longstanding battle between merchants and the banking industry has netted at least one victory for merchants on Capitol Hill. This week, the House and Senate came to an agreement over the issue of debit card swipe fees and are brining them under the purview of the federal government. What does that mean? We thought you’d never ask.

Interchange Fees

Interchange fees, or swipe fees, are a cut of the transaction that credit card issuers automatically get every time you pay with plastic. This is usually a percentage—so, if you buy a $100 DVD player,  about $98 goes to Best Buy and the remaining $2 gets divvied up between Bank of America, Visa, etc. By law, merchant’s can’t simply tack that amount on as a surcharge, which means that, in essence, credit card users pay less for their goods than those who pay in cash. Furthermore, certain cards have higher swipe fees than others. All of this, of course, is hidden from the consumer’s view—but it racks up to about $40 billion skimmed from the bottom-line of retailers, merchants and anyone else who accepts credit cards.

The New Rules

While the details are still getting banged out, the new rules will now require swipe fees to be “reasonable and proportional” to the processing cost. Merchants can also now offer discounts for cash, which will help pass the swipe fees on to consumers and extend some savings to those who opt out of plastic. Also, merchants can now set a $10 minimum for card transactions—which is something that many merchants already do, though not with the blessing of the federal government or card issuers. (In fact, prior to this rule, you could probably argue that a merchant couldn’t refuse your credit card for a $9 purchase, since they display the logo at their door.)

The Catches

These rules are still only a small victory for a number of reasons. For one, these restrictions and federal oversight of interchange fees only apply to debit cards, which leaves the other half –credit cards—still unregulated. Also, these rules only apply to banks with assets over $10 billion and exempts government-administered debit cards and reloadable prepaid cards. The former exemption, however, probably isn’t a bad thing since it means that credit unions (who are quickly gaining a reputation as the saviors of the financial industry) won’t be affected.

What’s Really Going to Happen?

As usual, the financial industry took this one kicking and screaming. And, as usual, they warned that taking away one of their beloved sources of revenue would force them to screw us over in some other department. Higher international exchange rate fees, perhaps? More pain at the ATM? Higher interest rates and shorter grace periods for all? We’ll just have to see.

Also, credit card companies, for once, argued against the trickle down theory that retailers have been arguing. Wal-Mart, for one, has been saying that it would pass along the millions of dollars of savings along to their customers. The banking industry, though, says they smell bullshit and claim that the retailers and merchants will just keep the money all to themselves.

Personally, I won’t be surprised if we the consumers once again get the short end of both sticks—no handouts from the 7-Elevens and Targets and more screwovers from the credit card industry. But one thing that will be a welcome change is the allowance of discounts for cash. This is a change that has been a long time coming and has needlessly penalized those of us who choose not to use credit cards.

What are your thoughts? Are the retailers on our side? Have they scored a strategic blow against the Big Banks on our behalf? Or are we just the little guy caught in the middle? Sound off in the comments.

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