Just a few short months ago, retailers and other small businesses throughout New York and the nation were applauding Congress for its bipartisan decision to reign in some of the gouging practices of the big banks and credit card networks. But now, before the ink is hardly dry on the draft Federal Reserve regulation implementing debit card fee reforms, the banks and Visa and MasterCard are ganging together to lobby Congress to retract the enacted reforms and savings and to allow their dubious past practices to continue.
At issue is the fact that every time a consumer uses a debit or credit card to make a purchase at their local retail store, both the merchant and the purchaser pay a portion of the "swipe fee" that banks charge in order to access the consumer's account. These swipe fees, or "interchange" in financial parlance, are hidden in the transaction price and won't appear on receipts or statements. Merchants are now hit with more than $1 billion per month in debit card swipe fees alone. Combined with credit card swipe fees, it's about a $50 billion annual hit.
The Wall Street Reform Act of 2010 requires the Federal Reserve to craft reasonable and proportional fees for debit card transactions rather than the excessive fees now imposed. The Fed is proposing a flat swipe fee of no more than 12 cents per transaction, beginning July 2011, provoking the credit card industry backlash.
Visa and MasterCard each separately work with their member banks collectively to set interchange fees. This is tantamount to price fixing and retailers have no negotiating power in this equation. Credit card interchange fees are up 117 percent since 2001 even though the cost of transaction processing continues to go down. Congress finally stepped in last year to put some sanity back into the system, at least as it relates to debit card transactions. That intercession is now in jeopardy.
We can't let the special interest banks and credit card companies bully the Main Street businesses back into submission, and we can't let Congress cave so quickly on this needed reform. Retailers are fighting back and we urge our customers to do the same.
James Sherin is president and CEO of the Retail Council of New York State.