Call it the mother of all fee battles – the ongoing clash between retailers and bankers over how much it should cost a retailer to swipe a customer’s debit card (swipe fees). The war should have ended last Friday with a retail victory, but it didn’t.
The Federal Reserve failed to meet the mandated April 21, 2011, deadline to issue new rules setting a cap on swipe fees that would have resulted in significant savings for retailers and consumers. Late last year, the Fed proposed a swipe fee of 12 cents per transaction, a reduction of 70 percent or $1.2 billion a month compared to the fees of 1 percent - 2 percent of each transaction currently being charged by banks. Last July’s Dodd-Frank financial reform act required the Fed to announce a cap on the monopoly-like swipe fees this month with full implementation by July.
The provision in Dodd-Frank to set “reasonable” swipe fees came when retailers convinced lawmakers to give the Fed power to set such fees. Retailers cited excessive costs if a customer used a debit card versus no cost if the customer paid by check. As you might expect, the banks and credit unions have gone ballistic and launched a counter offensive (a.k.a, bring in the lobbyists and the money!) Unfortunately, the surprising lack of action by the Fed last week could now be read as the banks are winning.
The banks’ protests have been vocal, if not always believable. Like, the threat that banks would cap the amount consumers could spend on a debit card at $100. Or, claiming it will force the banks to squeeze consumers in other ways to make up for the lost revenue. Or, the savings would only go into the retailers' pockets.
Since arguments like those haven’t gained much traction, the banks’ strategy turned to that famous lobbying firm -- Dilly, Dally and Delay! Reportedly, six Senators have said they want to delay the fee cap for two years and do a one-year study. Sens. Bob Corker, R-Tenn., and Jon Tester, D-Mont., are the apparent leaders of the group of six. Tester is a member of the Senate Banking Committee.
On the other hand, Reps. Peter Welch, D-VT, and Bill Shuster, R-Penn., just sent a letter to all their colleagues in the House arguing that any proposed bill that would delay setting swipe fee caps will harm retailers and small businesses. “The credit card industry has extracted billions of dollars in fees from small businesses around the country," Welch and Shuster wrote. "Visa and MasterCard cash in every time a credit or debit card is swiped, leaving small businesses and consumers to pay the tab. We urge you to keep these facts in mind when you are asked to support a delay in protections for merchants and small businesses from out-of-control debit card swipe fees."
FYI - In 2009, consumers used debit cards in nearly 38 billion retail transactions valued at $1.45 trillion, according to the Fed. Banks collected on average 44 cents in debit card swipe fees - averaging slightly more than 1 percent of each average sale for about $16 billion. The Fed has correctly said that's too high. Regulators determined the actual cost of a debit card transaction is only 4 cents. Now, however, it appears the Fed doesn’t have the mettle to finish what it’s directed to do.
Want to get into the action? Then, call, email or send a letter to your two Senators and your Congress person and urge them to reject any bill that would delay or repeal the requirement in Dodd-Frank that the Federal Reserve set reasonable swipe fees now. A two-year delay and one-year study are nothing more than a lobbying tactic to put off what is now required by law.