"Passage of this measure gives small businesses and their customers a real chance in the fight against the outrageously high 'swipe fees' charged by Visa and MasterCard," said Durbin (pictured). "It will prevent the giant credit-card companies from using anticompetitive [image-nocss] practices, allow merchants to offer discounts to their customers and restore common sense and fairness to this broken system."
He added, "By requiring debit-card fees to be reasonable, and by cleaning up Visa's and MasterCard's worst abuses, small businesses and their customers will be able to keep more of their own money."
Swipe fees are supposedly charged by Visa and MasterCard in order to cover the cost of processing a credit- or debit-card transaction; however, Visa and MasterCard continue to raise swipe fees even though processing costs have decreased, said Durbin. High swipe fees are yet another way that banks and credit-card companies hurt small businesses by charging fees that cut into already tight profit margins, he said.
An estimated $48 billion in swipe fees were charged by credit and debit card networks in 2008this money came out of the bottom line of small businesses and merchants across America, and 80 percent of this money went to just ten large banks.
"This historic vote would not have been possible without the tremendous support of our members who called on their senators and asked them to support this common-sense, consumer-friendly amendment," said NACS CEO and president Hank Armour. "These calls, along with the millions of consumer signatures retailers collected and delivered to Congress urging credit- and debit-card fee reform, clearly shows that members of Congress are listening to their constituents."
The vote came despite intense lobbying pressure from the financial community, which sought to discredit the amendment by inaccurately portraying it as damaging to small, community banks, NACS said.
The Durbin amendment would direct the Federal Reserve to issue rules to ensure that debit interchange fees are reasonable and proportional to the processing costs incurred. Visa and MasterCard currently charge debit interchange fees of around 1% to 2% of the transaction amount. These fees are far higher than the actual cost of processing debit transactions, and they mean that small businesses and merchants always get shortchanged when they accept a debit card for a sale.
The amendment also prevents card networks like Visa and MasterCard from penalizing sellers for offering discounts to customers. The amendment would allow sellers to offer discounts for customers to use competing card networks and for customers to pay by cash, check or debit card. The amendment would also allow sellers to choose to decline credit cards for small dollar purchases (because interchange fees often exceed profits on such sales).
The amendment is a response to interchange price-fixing by Visa and MasterCard, said Durbin. Interchange fees are received by the card-issuing bank in a debit transaction; however, Visa and MasterCard, which control 80% of the debit market, set the debit interchange fee rates that apply to all banks within their networks. Every bank gets the same interchange fee rate, regardless of how efficiently a bank conducts debit transactions. Visa and MasterCard do not allow banks to compete with one another or negotiate with merchants over interchange rates, and there is no constraint on Visa and MasterCard's ability to fix the rates at unreasonable levels. Visa and MasterCard constantly raise interchange rates because the more interchange the banks receive, the more the banks will issue cards. Visa and MasterCard receive a fee each time a card is swiped, so rising interchange rates enrich them too.
Visa and MasterCard have reduced debit interchange rates in other countries while increasing them in the United States, he added. While Visa and MasterCard continue to raise U.S. interchange rates (which are already the world's highest), the Government Accountability Office (GAO) found that "regulators in other countries have worked with Visa and MasterCard to voluntarily reduce their interchange rates." Just last month, Visa lowered many European debit rates by 60% while increasing many U.S. debit rates by 30%.
The Durbin amendment does not affect credit-card interchange fees. Some have argued that it would reduce credit availability by regulating credit-card interchange rates; however, the amendment's reasonable fee requirement only applies to debit cards.
The reasonable debit fee requirement exempts banks and credit unions with assets under $10 billion (this includes 99% of all banks and credit unions). Under the amendment, the requirement that debit fees be reasonable does not apply to debit cards issued by institutions with assets under $10 billion. This means that Visa and MasterCard can continue to set the same debit interchange rates that they do today for small banks and credit unions. Those institutions would not lose any interchange revenue that they currently receive.
The amendment would not enable merchants to discriminate against debit cards issued by small banks and credit unions. Visa and MasterCard contractually require merchants to accept all cards within their networks, and the amendment does not change that requirement.
And the amendment would not have the Federal Reserve set interchange prices. Instead the Federal Reserve would oversee the debit interchange fees set by card networks to ensure that they are "reasonable and proportional" to cost. This is the same "reasonable and proportional" standard that Congress directed the Federal Reserve to use to oversee consumer credit-card fees in the 2009 Credit CARD Act.The vote on this amendment is a critical step in the process, but it is not the final step, NACS said. The Senate must pass the broad financial services regulatory reform legislation, a vote that could come next week. If the Senate approves the bill, it must be reconciled with the reform legislation previously passed by the House. Because the House legislation did not include any reform of swipe fees, the Senate and House will have to reach agreement on this issue specifically. Once the two chambers have combined the two bills, both the House and Senate will again vote on the final package before sending it to the president for his signature.
Swipe fees have been the convenience and petroleum retailing industry's top "pain point" and second largest expense itembehind only labor costsfor a number of years, according to NACS. As a percentage of overall sales, card fees increased in 2009, from 1.35% to 1.45% of total industry sales dollars, factoring in all forms of payment, including cash and check. Total credit card fees ($7.4 billion) also surpassed overall convenience store industry pretax profits ($4.8 billion) for the fourth straight year in 2009.
Last month, NACS delivered to Congress two million consumer signatures that were collected at convenience stores across the country, making it one of the largest collections of consumer signatures ever for a public-policy issue. Combined with the 1.7 million signatures that 7-Eleven franchisees collected and delivered to Congress last September, 3.7 million consumers have weighed in on this issue over the past year.
"This fight is not over," said Armour. "We must keep the pressure on to continue to fight for swipe fee reform and get this legislation passed into law. NACS will continue to develop communications platforms that allow members to tell their elected leaders that it is time to eliminate the big banks' stranglehold on our businesses and give it to the rightful owners: the small businesses that serve Americans every day."
Click hereto view video of Durbin discussing swipe fees and S. Amdt 3989.
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