Swipe Fee Battle Continues
Retailers made a good enough case last summer that interchange
(AKA swipe) fees charged by banks to process debit card transactions were excessive
that an amendment from Senator Dick Durbin of Illinois was included in the
Dodd-Frank financial reform legislation that passed Congress. But, as they
say, that was then and this is now.
Yesterday, Senator Jon Tester of Montana
told The Wall Street Journal that
he believed he had enough votes to delay the rule capping fees for two years.
Sen. Tester’s measure has 16 co-sponsors, with members of both parties, that
would delay the Durbin amendment to give Congress more time to study and, presumably,
change it. Similar legislation by Barney Frank of Massachusetts has been introduced
in the House.
According to a piece on the Huffington Post site, Rep.
Frank said, "The
Federal Reserve’s announcement that they cannot meet the deadline on interchange
fees confirms my view that this is the only part of the financial reform bill
that needs to be amended. For this reason, I support legislative action to
postpone the deadline so that we can revisit it."
The Federal Reserve announced
that it could not meet the April 21 deadline to finalize regulations for the
amendment capping fees at 12 cents down from the previous 44 cents charged
by banks. The actual switch in interchange fees would have gone into effect
on July 21.
"We all know that in Congress ‘study’ is a euphemism for ‘kill,’"
Mallory Duncan, senior vice president and general counsel for the National
Retail Federation (NRF), said earlier this week. "Congress has done the right
thing in passing swipe fee reform. What we need to do is remind them of that."
A
NRF press release said no further study of the amendment is needed, pointing
out that "Congress held seven hearings and ordered two Government Accountability
Office studies before enacting swipe fee reform last year."
Banks, led
by JPMorgan Chase, have been pushing for the bill to be altered if not thrown
out altogether.
Jamie Dimon, chairman and CEO of JPMorgan, has said the Durbin
amendment "was
passed in the middle of the night with no facts, no analysis and Congress had
to vote on it, and it had nothing to do with the crisis."
- Our view: In ‘swipe fees’ fight, retailers make better case – USA Today
- Senator Targets Debit-Card Swipe Rule – The Wall Street Journal
- Rep.
Barney Frank Pledges To Revise Dodd-Frank’s ‘Swipe Fee’ Provision – The
Huffington Post - Merchants on Capitol Hill Today to Fight Delay of Swipe Fee Reform – National
Retail Federation
Discussion Questions
Discussion Questions: Is there any benefit to consumers in Congress delaying implementation of the Durbin amendment? What benefits do you expect consumers to see as a result of the cap on interchange fees?
Banks, like airlines, have forgotten how to make money. They want the easy way out by charging fees for everything, which is upsetting the consumer. Bank consolidations have removed free market forces, which is why the government is trying to set the rules. This never works out well for consumers. What is so difficult in monitoring transaction fees? As usual, our big bloated government cannot execute a simple process. They are beholden to the banks and will string this out for years. I am seeing more and more retailers offering a cash price. This is the only way retailers and consumers can fight the system.
There is no question that retailers, service providers (auto repair shops, etc.) and other establishments are creating many “work-arounds” for the interchange fee challenges. Discounts for cash or debit cards are just one way. Some ways are less than ethical, also. However, it is hard to fault these establishments when during our weak economic recovery the US Government continues to penalize both consumers and businesses while driving up operational costs for the entire commerce ecosystem.
The government has two choices. Either they make the environment competitive or they regulate the actors. The government has permitted the banking industry to consolidate to the point where there is almost no competition. In that case, they must regulate fees (and lots of other actions the banks take.) As a country we can’t have it both ways, no regulation and no competition.
We are capitalists, but we also must understand that competition is the opposite of capitalism. Capitalism unfettered eliminates all competition. Therefore, there must be a balancing force to protect the strong (banks) from the weak (consumers).
Another example of the Golden Rule of government: he who has the gold makes the rules.
I guess I do not understand the interchange fee system. There are a lot of banks. Is it possible for a retailer to shop for a better deal or are the fees essentially controlled by VISA, MasterCard, Discover, AmEx, etc.? I certainly agree that a contractual provision that prohibits (1) a discount for cash; (2) a minimum purchase amount that can be charged to a card; or even (3) a fee added to the purchase amount to use a card should be considered an antitrust violation. However, no one ever seems to mention that there are also costs (and risks) of taking cash and checks. The armored car service is not free. Counterfeit money is not rare. Cash can be lost or stolen. Banks often charge to take cash deposits from businesses. Checks do not clear immediately and a certain percent bounce.
Retailers do not have to accept credit cards–they obviously do so because it is a competitive necessity. Many food retailers also double coupons. They don’t have to but they must think that is also a competitive necessity. The cost of double coupons is probably far more than interchange fees. Perhaps they want Congress to regulate (make illegal) that practice as well.
This is another area government shouldn’t be involved in. If retailers have a problem they should organize their own clearing service. Our country isn’t about the government, it’s about competition. When business has to whine to the government then it isn’t a business anymore. Besides, the businesses weren’t paying the charges anyway–the consumer is! I am going to sit back and see the wave of price reductions when the Durban act is implemented. In my opinion, every business benefiting from this reduction in their cost of doing business should be triple taxed on their windfall profits.
Here are numbers/thoughts to ponder:
– The convenience retail industry sells about 80% of the fuel in the U.S.
– 75% or more the fuel is paid for by credit cards.
– Credit cards fees last year were $9B or 50% MORE that the industry made
– Do you want to go back to days when you had to go inside to pay cash for you fuel?
– Cash acceptors on the island are not a viable option due to theft issues.
This is an industry mostly by entrepreneurs–over 62% of all c-stores are single-site operators and are loath to have the government involved in their business. Yet this industry is firmly behind the credit card reform–NOW!
There is no end to the greed of these banks. There is an advocacy ad running every hour here in DC that asserts that customers are upset that “retailers just got a $12 billion dollar payday.” The ad suggests that customers are unhappy that they’ll be stuck with the fees the retailers were paying, and that the retailers should again have to pay them. It’s insane–customers don’t want ANYONE paying banks’ fees. I wish we’d have comprehensive banking reform, including reinstatement of the Glass-Steagal act, but this Congress won’t allow it.
The banks and lobbyists are just playing on fear. The reality is yes, the banks will take away the rewards on Debit Cards. However, do the math. If a merchant has to give 2-3% of their profits to banks/processors, then it just gets factored back in to the cost of their sale price. The question gets asked…will the business pass this savings back to the consumer? I would have to say yes, in many ways! When a business has less overhead, it ups the odds they will stay in business. When they have great profits they don’t just sit on it: they hire, they expand, they put people back to work!
I say let’s get behind the businesses! The company you support and is able to keep its doors open might just be the one you work for!
And if you think you need those big banks and their big CEO compensation plans, consider this…you can get the same Car Loan, the same Home Loan, same Credit Card, etc. at a smaller bank or Credit Union that pays the CEO an average of a 100k.