ALEXANDRIA, Va. -- The eighth congressional hearing on swipe-fee reform was very much like the previous seven, said NACS: Retailer groups explained how fixing the broken swipe-fee system benefits consumers, while the banking lobby sought to distract and scare members of Congress.
"Swipe-fee reform can reduce the hidden fees that inflate prices, and that is a win for consumers," said Doug Kantor, counsel for NACS and the Merchants Payments Coalition (MPC), in yesterday's House Subcommittee on Financial Institutions & Consumer Credit hearing: "Understanding the Federal Reserve's Proposed [image-nocss] Rule on Interchange Fees: Implications & Consequences of the Durbin Amendment."
(Click here to view the hearing and prepared testimony.)
"In fact, consumers are already saving due to the Durbin amendment," said Kantor. "The provision that allows for cash discounts helped embolden merchants--especially at the gas pump and in restaurants--to offer cash discounts in spite of the aggressive restraints that the card networks had put on them in the past."
On December 16, 2010, the Federal Reserve issued a proposed rule, as directed by Congress in the financial services reform bill, to issue rules to ensure that debit swipe fees are reasonable and proportional to the processing costs incurred. The Fed also asked for public comments to the rule, which are expected to be finalized on April 21 and implemented by July 21.
Kantor urged subcommittee members to push forward the Federal Reserve's proposed rules on swipe fees. He said that cards fees at convenience stores alone were $7.4 billion in 2009--significantly more than the industry's $4.8 in pretax profits.
"These fees are stunting business growth and hurting efforts to hire more workers and expand operations," said Kantor.
Kantor was also quick to refute claims by the banking industry that swipe-fee reform would cause other fees to increase.
"Banks looked for years to find excuses for raising checking fees on consumers. Today, it just happens to be the Durbin amendment's turn to join the hit parade," said Kantor.
Kantor said that the banks previously have said that the financial collapse of 2008, the Credit Card Act of 2009 and overdraft regulations would each end perks like free checking.
"They are no longer credible on this question," said Kantor. "If the banks were correct that reducing swipe fees would result in higher bank fees on consumers, then the dramatic increases that led to a tripling in swipe fees over the past decade should have reduced consumer fees charged by banks. That has not happened. Banks have increased consumer fees over the last decade as well. Overdraft fees alone, for example, doubled from $19 billion to $38 billion from 2000 to 2009."
(Meanwhile, to hear the argument against swipe-fee reform, click here to watch a separate FOXBusiness report, an interview with Chris McWilton, MasterCard's president of U.S. markets.)
Kantor also said that swipe-fee reform would introduce competition into a system that currently has none.
"Now, the way the banks agree to charge the same fees and the credit- and debit-card networks restrain competition undercuts any semblance of a competitive market, and merchants and consumers lose," Kantor said. "The impact on anticompetitive swipe fees on consumers is dramatic. The Durbin amendment and the Federal Reserve's rules will help."
Kantor also said that the proposed rules will allow banks to still make a sizable profit on debit transactions. The proposed rulemaking by the Fed did not seek to eliminate debit swipe fees, but to define a rate that was fair and equitable, with per-transaction rates of 7 or 12 cents both proposed.
Retail experts have long argued that costs to process debit transactions, which are essentially electronic checks, should be in line with the fees charged to process paper checks--approximately 5 cents per check. Such a fee structure is largely in place in seven of the world's eight largest debit markets, including Canada, in which the banks do not collect debit card swipe fees.
The efficiencies related to electronic transactions should make the costs to process these transactions lower than those for processing paper checks, and that was confirmed by the Fed's research, noted Kantor.
"The Fed's survey of banks found that (debit swipe fee) costs amounted to 4 cents per transaction, but the Fed's rule allows for either 7 or 12 cents to be charged. That makes for average profit margins of 75% to 300%. Those are margins that no retailer would dare dream of making," he said.
"Last year's proposed rulemaking by the Federal Reserve sought to create a system in which debit swipe fees are reasonable and proportional to the processing costs incurred," said NACS president and CEO Hank Armour. "We cannot allow Visa, MasterCard and the world's biggest banks to spend millions of lobbying dollars to delay implementation and protect their multi-billion-dollar cash cow that delivers no commensurate benefits to retailers or consumers.
"We welcome the opportunity to once again highlight just how important swipe fee reform is to small businesses and their customers," said Armour. "But make no mistake--we realize that this hearing is a critical component of the banking industry's strategy to ultimately reverse what Congress enacted. We cannot and will not allow that to happen."
(Click here for previous CSP Daily News coverage of swipe-fee reform.)Founded in 1961 as the National Association of Convenience Stores, Alexandria, Va.-based NACS represents 2,100 retail and 1,600 supplier member companies.
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