The comments made on Thursday marked a small gain in the financial industry's fight to roll back parts of the Dodd-Frank financial reform law, also a major priority for Republicans in the new Congress.

Fed Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair said the Fed's December proposal could inadvertently hurt small banks and consumers. House Democrats also said more time is needed to study the proposal's impact, and pushed for the Fed to delay its rule.

"Today might have been a glimmer of hope... but it's going to be really tough," said Joel Oswald, a principal at the lobbying firm Williams & Jensen, which has done work for Visa. Oswald spoke during a panel discussion at a Keefe, Bruyette & Woods card industry conference in New York.

Bair said debit transaction fees, called "interchange fees," would likely force smaller banks to make up for lost revenue with higher account fees for customers.

She told a Senate Banking Committee hearing Thursday that her agency would be writing to the Fed about its concerns.

Bernanke, also testifying to the Senate panel, said the exemption for small banks in Dodd-Frank might not work.

"There is some risk that exemption will not be effective, and that the interchange fees available to smaller institutions will be reduced to the same extent we would see it at larger banks," he said.

Although the hearing remarks centered on smaller banks, large banks and card network companies such as Visa and MasterCard have also complained bitterly about a proposal issued by the Fed in December that would cut debit card processing fee revenue by nearly 75 percent.

That comes to about $13 billion in lost annual revenue, according to CardHub.com.

Malcolm Polley, president and chief investment officer at Stewart Capital Advisors, says a distinction between small banks and large banks is unworkable. "The rates will follow what is being set by the larger organizations."

At a separate hearing on interchange fees, before a House of Representatives' panel, Democrats and Republicans said more time is needed to study the proposal, which is supposed to be finalized in April and put into effect by July.

"A delay of this rule is certainly in order," said Democratic Representative David Scott.

UPHILL BATTLE

Last year's Dodd-Frank law called for the Fed to craft rules limiting interchange fees, the charges banks impose on retailers when a customer uses a debit card.

The Fed surprised the financial industry, and investors, with the severity of its Dec. 16 proposal to cap fees. The proposal could also terminate some of Visa and MasterCard's exclusive processing deals with banks.

The day of the proposal, shares in Visa and MasterCard lost more than 10 percent of their value. MasterCard shares have largely recovered but Visa remains shy of its pre-Fed levels.

Bank of America has said it could lose $1.8 billion to $2.3 billion in annual revenue from debit card fee limits.

Community banks and credit unions have argued that despite their exemption, there is nothing to stop the card networks from forcing them to comply with the limit because having two different payment systems based on the size of the bank may be unworkable.

The card industry has focused sizable lobbying firepower at both Capitol Hill and the Fed, taking a two-track approach in hopes of getting either legislative or regulatory relief.

Despite the flexibility shown by lawmakers and regulators Thursday, banks and card companies face an uphill slog.

Thursday, Visa shares closed up 0.2 percent at $76.14, while MasterCard shares closed down 1 percent to $251.82.

No lawmaker has stepped forward with a bill, and even if the House were to pass legislation it would face stiff resistance in the Senate.

Senator Richard Durbin authored the debit fee provision. As a member of the Senate's Democratic leadership he is in a good position to bat away any challenges to the fee restrictions.

Durbin said on Thursday that Bernanke's testimony simply "echoed the financial industry's talking points."

Paul Miller, an analyst with FBR Capital Markets, said the Fed has the power to make technical corrections to clarify the small bank exception but said he does not expect a widespread industry reprieve from the proposal.

"Congress knew exactly what they were doing when they crafted the amendment, and the Fed's hands are tied on this," Miller said.