More than 100 small retailers rallied in front of the U.S. Capitol on Thursday to ask Congress to protect billions of dollars in pending cuts in merchant “swipe fees” for debit cards.
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They said the proposed rollbacks in “interchange” fees, which they won as part of financial reform legislation, will allow them to retain more profits they can use to reinvest in their businesses and create jobs, or will give them savings they can pass along to consumers through lower product prices.
“In my business, the swipe fee folks, the interchange folks, the financial services folks are the only entity in my retail world that I cannot negotiate with,” Dennis Lane, president of the New England 7-Eleven Franchise Owners Association, said at the merchant event. “I can sit down and negotiate with Coke and Pepsi and all the folks that I do business with; I cannot negotiate with the Visa’s and the MasterCard’s of the world.”
The stakes in the fight have escalated in recent years with the soaring popularity in debit and prepaid cards—and merchants’ fee payments with them.
According to the Federal Reserve, in 2009, consumers used debit cards in nearly 38 billion retail transactions valued at $1.45 trillion. On average, banks collected 44 cents in interchange fees in the transactions that year--a little over 1% of each sale, but they added up to about $16 billion.
Last year, retailers persuaded lawmakers to give the Fed the power to set the fees at “reasonable” levels, “proportional to the cost incurred by the issuer with respect to the transaction.”
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In a preliminary and controversial ruling in December, the Fed found the fees too high. It proposed capping them at 12 cents per transaction starting in July--a 70% reduction.
Banks, credit unions and other financial firms launched a counteroffensive that has mobilized trade groups and an army of lobbyists on both sides and cost millions.
Among other things, banks argue the proposed changes do not guarantee that retailers will pass savings on to consumers and that they could just boost the bottom lines of mainly a handful of large retailers like Wal-Mart (WMT).
Financial firms also say the Fed’s proposal could end up costing customers other ways.
“If financial institutions have to cover all of the costs or virtually all of the costs of debit, they will have to make it up somewhere,” said Bill Hampel, senior vice president at the Credit Union National Association and spokesman for the Electronic Payments Coalition. “And the most likely way to make that up is through increased fees on the consumers who use the debit cards. So that could be things like a monthly fee to have access to a debit card or a per-transaction fee.”
Hampel added that with new direct charges, many consumers could stop using debit cards, hurting retailers themselves.
Jaret Seiberg, a financial analyst in Washington with MF Global, called the faceoff “a battle between two big business groups, the banks and the merchants, with little upside for consumers.”
Financial firms support pending legislation that would put the cuts on hold for a year or two and require the Fed to conduct more research on them, a move merchants say buys firms time to kill the rollbacks.
The legislation is coming from Republican and Democratic lawmakers sympathetic mainly to smaller community banks and credit unions and now worried about possible cost-shifting to consumers, as well as too much regulation of financial markets.
The Fed plans to issue final fee rules in April. Seiberg believes it could “sweeten the pot” for banks by proposing smaller reductions that take into account additional costs for transactions, such as “network” charges and fraud losses.
Any changes in the law would likely pass the Republican-controlled House, Seiberg said. But they will require at least 60 votes to get through the Democratic-controlled Senate – a high hurdle for any legislation these days in the highly-charged, politically divided body. As a result, he said banks have an uphill fight.
“Right now, the banks have some momentum--but the retailers only need to play defense,” Seiberg said. “And it’s a lot easier in Washington to block something than it is to enact something, so the merchants still have the edge in this fight.”
Fox Business’ Stephanie Dhue contributed to this article