"In my industry, the situation is unbearable," Newton said in testimony before [image-nocss] the subcommittee. "For the last four years running, my industry has paid more in card fees than it has made in total pre-tax profits."
Newton also explained how swipe fees are hurting the economy at an already fragile time. "In the last half of 2007 and first half of 2008, more than 3,000 gas stations and convenience stores went out of business," he said. "Many of those businesses would have survived if it wasn't for these fees which are, on average, the second-highest operating expense our [TPCA] members have. That impact cannot be overstated."
Click on the video to view Newton's testimony. Andclick here for additional testimony.
Also testifying at the hearing was Jerry Buss, a Pizza Hut franchisee from western Pennsylvania.
Buss praised the Congressional action so far on swipe fees, saying, "At this time in our economic anxiety, Congress has given merchants and our customers a liftyou have begun to introduce competition into a 'market' where no market forces previously existed. In passing the recent financial services lawand specifically the Durbin Amendmentyou voted to ensure that debit card fees were reasonable and proportional to their actual costs, a major improvement over the extraordinarily high swipe fees imposed on us by the big banks and their card associations."
Both Newton and Buss expressed the hope that Congress and the Federal Reserve would not be taken in by the distortions continuing to be offered by the banking industry in hopes of watering down swipe-fee reforms.
"The big banks will continue to say that they can't survive in a transparent and competitive market," said Buss. "But I do."
Newton added, "This is now the eighth congressional hearing focusing on the topic of interchange fees. In all of those hearings (including today's), not a single bank or credit union with assets of more than $10 billion has ever agreed to send a witness to testify. That is an incredible record of obfuscation and hiding the facts. The biggest banks can try to hide behind their smaller brethren, but I hope that this committee, which focuses on small businesses, will see through that cynical strategy."
"[The Durbin Amendment] should not be controversial," he said. "In competitive markets, prices are reasonable and proportional to costs because competition brings everyone down to that level. The Durbin Amendment, then, makes up for the fact that there is no downward price competition currently for debit card interchange fees."
Provisions within the Durbin Amendment direct the Federal Reserve to issue rules to ensure that debit-card interchange fees are reasonable and proportional to the processing costs incurred. Visa and MasterCard currently charge debit swipe fees of around 1% to 2% of the transaction amountamong the highest rates in the industrialized world, added the National Association of Convenience Stores (NACS).
The new law includes a provision directing the Federal Reserve to issue rules preventing card networks from requiring that their debit cards can only be used on one debit card networkensuring that retailers will have the choice of at least two networks upon which to process debit transactions.
Newton blasted the banking industry for spreading misinformation about who would benefitor be hurtby the Durbin Amendment, NACS added. While the banks claim that only large retailers would benefit from the new law, the opposite is true. In fact, Visa and MasterCard have set up a system that disadvantages small businesses compared to their larger competitors.
In addition, the financial community is still advocating that small, community banks would be hurt by regulation. The reality is that more than 99% of all financial institutions are exempt from the threshold of $10 billion or more in assets, said NACS.
"This is now the eighth congressional hearing focusing on the topic of interchange fees. In all of those hearings (including today's), not a single bank or credit union with assets of more than $10 billion has ever agreed to send a witness to testify," Newton said. "That is an incredible record of obfuscation and hiding the facts. The biggest banks can try to hide behind their smaller brethren, but I hope that this committee, which focuses on small businesses, will see through that cynical strategy."
"Once the Federal Reserve shows people the costs and the way that all of us have been ripped off by centrally set fees for decades, people will want further reforms. This can and should happen," said Newton. "The passage of the Durbin Amendment is a harbinger that the days of hidden fees and related card industry tricks to profit from consumers and small businesses are coming to an end. This can and should be the result."
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