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Readers deem swipe fee change worth other risks in financial reform package
OAK BROOK, Ill. -- When I wrote my editorial, "A Questionable Swipe," which appeared in Friday's CSP Daily News, I did so with some hesitance. I wholeheartedly agree with NACS, PMAA and the other retail associations who have fought valiantly for interchange reform. With a few major institutions controlling such fees, there is no free competition. What I did question was whether our support forced us to back a massive government-expansion bill that we would ordinarily oppose.

Click hereto view the original editorial.

A poll that ran in the same issue asked, "Aside from the interchange fee and oil futures legislation, do you support the financial reform bill signed into law by President Obama?" Of the more than 120 respondents, more than 50% said "no"; about 22% said "I don't really know what else is in the bill"; nearly 16% said "some parts yes, some parts no"; and nearly 12% said "yes."

I asked for your comments on my editorial, and boy, did you respond. Thank you.

Here is what you had to say:

Regarding your question, did we deliver a blow to free markets? The real question is, are we beginning to disrupt a cartel of banks who spent decades engaged in unregulated interchange price-fixing?

The problem with unregulated interchange fees started with the card networks themselves (Visa, MasterCard, AMEX and Discover) and the eight big U.S. banks that still owns them and issues the vast majority of their cards.

These big banks decide which brand of card(s) to issue in large part based on which one(s) pay themselves the highest interchange fees. The higher the interchange rate, the more attractive that card is to issue.

Unfortunately for retailers, it was painless for bankers (and invisible to consumers) to engage in a lucrative game of pricing one-upmanship and continually raise interchange "to stay competitive" without any independent oversight. Banks set their own prices and simply passed that higher interchange onto the retailers. The card networks and their bankers are highly motivated to raise interchange fees and simply pass the cost along to retailers.

When retailers complained to their bankers, the response from their banker was a glib, "no problem, just don't accept our cards and we'll take our cardholders somewhere else." Anyone in retailing knows that is not a formula for sustainability. So, for decades, retailers accepted the spanking and passed the cost, as best they could, onto customers.

I agree the best solution is free markets. But, the only free-market interchange pricing solution is for banks to charge their customers (the cardholders)but not retailers - for interchange fees. And, empower consumers to decide which card to use to paythe low cost card to save money, or the higher-cost card that offers "rewards." As we all know, that won't happen.
--Dan Stiel, Stiel Direct LLC

In a competitive marketplace, businesses can't raise their prices at the high percentage clips of the card industry without a fundamental shift in the cost of goods that impacts all competitors.

I should say and hope that you agree that the swipe fees are very far away from any type of competitive marketplace and increases continue unabated without justification. Unless you consider the insane CEO paydays of many of the top card issuing institutions a justification.

Bring some competition to the table that the big boys haven't quashed or had their lobbyists nullify thru legislation and there would be no need for regulation.

On the other side of the coin, where credit cards themselves once were a luxury primarily used when you booked travel. Today, the cards have allowed consumer spending to outpace their incomes where it was once taboo to carry a balance. We as consumers over the last 25 to 30 years have bought into the idea that we can and should live four to five paychecks ahead of ourselves through plastic. It has become a bit like indentured servitude where many people have no choice but to use plastic because they have no money to spend.

We as consumers have choices and cash is king. Exercise your rights by getting into sound financial shape so there is always a little cash in your pocket. I know it may sound a bit arcane to go back to cash, but it certainly is better than not having a say on how you are nickeled and dimed. Let your George Washingtons be the voice of the informed consumer.--Name withheld by request


Your concerns are valid, Mitch. But the choice was not between a bad bill and swipe fee reform. The choice was between a bill that included swipe fee reform and a bill that did not. With or without the Durbin amendment, Congress was going to pass a financial services reform package. Accepting this political reality, NACS and its allies seized the rare opportunity to seek relief for fee-weary retailers, and did a tremendous job navigating the swampy legislative process to get it done.--Jim Calvin, president,New York Association of Convenience Stores

As an industry we sold our souls to support a group of politicians who used a cynical piece of legislation to purportedly correct problems many of which were created by the sponsors of the bill. As much as I despise the interchange fees and their impact on our business I have a hard time abandoning my free market principles to get what I want. Our industry supported a piece of legislation which did not even address Fannie Mae and Freddie Mac which is a travesty for our economy and country. I think this is a very hollow victory and will raise costs in other ways for small businesses that will more than offset any supposed changes in the interchange fees. There comes a time when no matter how painful it may be you must stand on principle. This was one of these times and we failed the test.I know there were some people who worked really hard on this and consider it a huge victory. In politics you have to compromise all the time. I just think we supported an agenda that is counter to everything we, as small business people, believe in.--Name withheld by request


Having been around politics for more than 25 years, my sense is that this bill is like so many bills that are the results of compromise-driven writers who must come up with 60 votes. Most compromise bills are characterized by nobody being happy about the entire bill.

From my vantage point, the financial services legislation was probably going to pass by the thinnest of margins along party lines, with a few GOP senators once again siding with the Dems. Knowing this, I believe that it was prudent to try to get anything we could attached to the legislation. Interchange reform, as a standalone proposition, was dead in the water and would remain so. By picking a "vehicle" to add language beneficial to our industry, I think we took advantage of something that was eventually headed to passage.

Furthermore, by getting it's "nose under the tent" with this debit interchange language, the industry will have the opportunity to demonstrate that the world isn't going to come to an end (as claimed by opponents) with its passage, which hopefully will lead to further reforms in the credit card arena.

While the industry may have helped somewhat with the final bill's passage, the actual vote showed that they guessed right on what the final vote was going to be and jumped onboard. The "real" vote that needed to be looked at was not the final vote, but the number of GOP senators who supported our efforts to add the Durbin amendment. That was where we had the real impact.

This bill was going to pass, period. NACS and other industry groups are to be commended for making some lemonade out of a real sour proposition.
--Jim Tudor, president, Georgia Association of Convenience Stores


The well-written story is correct in that you can "kiss" more of your freedom goodbye!
--David Matteson, vice president & co-owner, Red Bud Oil Co.
Please forward any additional comments to cspinquire@cspnet.com.

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