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On the first anniversary of the enactment of Federal Reserve rules limiting credit card companies’ ability to fix the prices of swipe fees that businesses pay banks for debit transactions, the retail industry is celebrating the reform measures’ success
“Debit swipe fee reform has been a win for consumers and Main Street businesses, especially small businesses,” asserted Mallory Duncan, chairman of the Washington, D.C.-based Merchants Payments Coalition (MPC), a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, online merchants and other businesses, and SVP and general counsel of the National Retail Federation (NRF), also based in the nation’s capital. “While the Federal Reserve should have done more, experience has proven that Congress got this one right. Limiting price-fixing is always better than letting it continue and where fees are lower, prices are lower.”
For large purchases, debit swipe fees on big-bank cards now account for less of each purchase, helping merchants keep prices down, added Duncan, noting that overall, retail profit margins have fallen since swipe reform, showing that savings are being passed on to consumers.
“[Our] members fought hard for the debit swipe fee reforms and believe it sets the stage for similar reforms to credit card swipe fees, which are eight times higher in the United States than in Europe and other developed countries,” said Peter J. Larkin, president and CEO of the Arlington, Va.-based National Grocers Association (NGA). “To ensure the marketplace works like it should, we need transparency and competition brought to credit card swipe fees.”
Both the MPC and NGA cited a recent report by Moody’s Investors Services finding the savings from debit reform have offset the rising costs of items like gas and food commodities. While Moody’s conservatively projected that debit savings could counterbalance a normal rise in consumers prices, debit reform has actually placed more emphasis on the ability to provide discounts and other benefits for cash, leading to lower prices and savings for consumers in a number of circumstances.
Additionally, despite reform, big banks are still making a significant profit on debit transactions. The Federal Reserve’s own survey results found that while it costs banks an average of 4 cents to process a debit transaction, following debit reform, they’re allowed to charge merchants 21 cents per debit transaction, and Moneyrates.com data shows that debit reform hasn’t changed what banks charge for their services.
“Debit reform was important, but it fixed only part of the problem,” observed Tom Wenning, NGA’s EVP and general counsel. “We now need to reform credit card swipe fees and bring the same transparency and competition to ensure that the market works like it should. If we don’t, merchants will continue to see money float out the door to pad bank profits and consumers will pay more than they should for goods -- hundreds of dollars every year.”
Although NGA also maintains that the debit swipe fee rules didn’t go far enough, particularly in the case of rural merchants served by smaller banks exempted by the Durbin Amendment, the group still hails the measures as “an important first step [that provides] consumers and some merchants with relief and protection from excessive and hidden fees.”