Fee market: New law curtails debit card ‘swipe’ charges
Pro: Reductions due to take effect July 21 will lower the high cost to U.S. consumers
Whether you are in line at the grocery store or have just filled your gas tank, as soon as you reach for that piece of plastic in your wallet the credit-card companies and big banks have got you right where they want you. They have been raking in billions of dollars off the backs of consumers and small merchants for years in the form of hidden “swipe” fees.
Swipe fees are no small matter. These hidden charges – an average of 44 cents per transaction – are collected by banks whenever a card is used, and drive prices up by $2 for every $100 purchased.
Left unchecked, they have tripled to $50 billion annually over the past decade. And at $427 a year for the average household, U.S. consumers pay the highest swipe fees in the world. With the economic recovery still trying to gain momentum and consumers facing skyrocketing costs for necessities like food and fuel, the need for relief has never been greater.
After seven hearings and two GAO reports, Congress last year ordered the Federal Reserve to create new rules stopping a big part of this price gouging once and for all.
Credit cards have yet to be dealt with, but guidelines proposed by the Fed would reduce the debit-card swipe fees from 44 cents to no more than 12 cents per transaction for the nation’s biggest banks, a savings of 70 percent. While well above the banks’ actual 4-cent cost of processing the transactions, this reduction is an important first step.
The new law will save retailers an estimated $14 billion a year – more than $1 billion a month – that merchants plan to pass along to their customers through lower prices and higher value.
Yet, despite swipe fee reform being a done deal with a law on the books and reductions scheduled to take effect July 21, the card companies and big banks are doing everything they can to kill the reform.
They’ve launched an all-out assault through a multimillion-dollar misinformation campaign aimed at scaring consumers and Congress into preserving this cash cow and forcing consumers to continue paying these hidden fees. In fact, they have managed to get legislation introduced that would delay reform by more than a year.
The banking industry continues to cry wolf through attack ads and empty threats against its own customers. They’ve used community banks and credit unions as human shields, claiming reform would be too onerous for small banks, yet fail to mention that financial institutions with less than $10 billion in assets are exempt.
Big banks even went so far as to call swipe fee reform a bailout for retailers. In reality, delaying reform would amount to an additional $1 billion-a-month bailout for the banks paid for by consumers who have already paid for earlier bank bailouts through their tax dollars.
While banks spend millions trying to keep this archaic system in place, retailers are busy coming up with methods to pass these savings on to their customers. Unlike banking, retail is the most competitive and innovative industry in the world. If one retailer doesn’t pass along the savings his competitor will.
Congress came to the right conclusion last year – swipe fees have driven up prices far too much for far too long.
With reform set to take effect and Main Street businesses and their customers about to benefit from this boost to the economy, it’s too late for banks to be angling for a do-over now. Congress should stand by last year’s vote and not let banks steal swipe fee reform away.
Matthew Shay is the president and CEO of the National Retail Federation (www.nrf.com).