A couple weeks ago, we saw the enormous lobby culture massing around swipe fees, the relatively obscure issue that determines where billions of dollars go between banks and retailers. The important thing to start with is that this was already determined through a public process. Last year, Congress held a vote, Dick Durbin got over 60 of his colleagues to support him, the measure survived reconciliation, passed into law, and the Federal Reserve began to implement the rule. The system, therefore, worked. What banks are doing is trying to roll back the clock on the reform. They were paying attention to other matters in FinReg and now they have circled back to this. Because they have money and influence, they think they can just nullify a year’s worth of policymaking.

And it appears that Fed Chair Ben Bernanke has been partially captured in this quest:

Federal Reserve Chairman Ben S. Bernanke said lawmakers should have “reason to be concerned” that an exemption for smaller lenders from U.S. caps on debit- card “swipe” fees won’t work and may cause banks to fail.

“I can’t say with certainty, but I think there is good reason to be concerned about it,” Bernanke said in response to a question at a Senate Banking Committee hearing today in Washington. If the exemption doesn’t work, “it’s going to affect the revenues of the small issuers, and it could result in some smaller banks being less profitable or even failing,” he said.

The Dodd-Frank Act requires the Fed to cap debit-card swipe fees charged to merchants, while exempting card issuers with assets of less than $10 billion. The central bank has proposed capping the fees at 12 cents a transaction, replacing a formula that averages 1.14 percent of the purchase price.

Community banks and credit unions have said the exemption won’t work and may make their cards less competitive, as they will be more expensive for merchants to accept than cards issued by larger banks. The exempt banks oppose the Fed’s plan along with the biggest lenders, including Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM), which could lose more than $12 billion in annual revenue if the caps take effect.

Outgoing FDIC Chair Sheila Bair basically agreed with Bernanke on this one, though Bair just said it would hurt small bank profits, not cause them to collapse. They are both parroting an argument of these community banks in service to the bigger banks who want the entire reform shelved. There’s no evidence that the exemption for smaller banks would work negatively for them. No retailer has come out and said they would charge more for items or not accept purchases from debit cards from smaller banks. It’s a made-up objection from the industry to facilitate a delay of the whole rule.

By the way, the industry is already dealing with this. Visa has initiated a “two-tier” pricing system that will allow smaller banks to charge higher swipe fees.

Despite this, Bair and Bernanke also said that the new swipe fees would take effect on schedule regardless, on July 21. They didn’t feel that any more information was required for the Fed to finalize the rule.

One other thing on this. If the survival of hundreds of banks depends on rent-seeking fees from debit card purchases, isn’t there a much more fundamental problem with the overall system?