WASHINGTON – According to the Merchants Payments Coalition (MPC), of which NACS is an executive member, evidence shows that five years after passage of the Dodd-Frank financial-reform law, debit card fees are more competitive and fairer for small merchants and consumers.
Debit swipe fee reform has saved consumers almost $6 billion each year since took effect, based on a study by economist Robert J. Shapiro, and supported 37,500 jobs a year as well.
“Without reform, price-fixing of debit card swipe fees would still be unchecked,” said Mallory Duncan, MPC chairman and senior vice president and general counsel of the National Retail Federation. “Debit reform brought some rationality to a system that made card fees merchants’ fastest-growing expense.”
Five years ago, Congress required the Federal Reserve to limit how much price-fixing card companies can do for their banks. The bipartisan change was championed by Senator Richard Durbin (D-IL).
Visa and MasterCard dominate the market for debit and credit cards. The MPC states that the card companies secretly fix swipe fees so the banks that issue the cards don’t have to compete for merchants’ business. Essentially, the banks all charge the same outrageous fees, and all of the banks’ claims about potential problems with debit reform have been proved false.
Debit reform only applies to financial institution with $10 billion or more in assets — a handful of credit unions and banks. Smaller institutions are free to charge the old, higher fees.
“The big banks have been feigning concern about small banks and consumers for years to defend their indefensibly high swipe fees,” said Lyle Beckwith, NACS senior vice president of government relations. “But the facts simply don’t support their contentions.”
High swipe fees on debit and credit cards have ballooned into many merchants’ second-highest operating cost after labor. With tiny profit margins, especially compared to the banks, merchants have to raise prices to cover at least part of the cost of swipe fees. That means everybody, even people who don’t use cards, pay higher prices for everything from gas to groceries.
While the debit reform measure is a huge improvement, the Federal Reserve allowed the banks to charge about 25 cents per transaction, more than twice the amount it had originally considered. That means banks still rack up a juicy profit margin on each transaction — 500% — according to the figures the banks themselves report to the Federal Reserve.
Merchants are urging the Fed to reconsider its rules and further restrict price-fixing by the card companies.