Industry Intelligence

The retail food industry’s leading trade groups condemned a final ruling by the Federal Reserve as failing to honor the intent of the bipartisan reforms passed by Congress. The rule, which guides implementation of the debit swipe fee reforms, is a startling departure from rules that the Federal Reserve proposed in December, which will in turn prolong the struggle for small businesses to bring parity to the debit card market and ultimately prevent the intended relief from reaching merchants and consumers.

“Today the voice of big banks drowned out the cries of consumers and Main Street merchants in the ears of the Federal Reserve,” said Leslie G. Sarasin, president/CEO of the Food Marketing Institute (FMI), who described the ruling as inconsistent with proposals issued last December “and utterly [failing] to be true to the spirit of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed more than a year ago. It will not provide sufficient reform for businesses that are currently fighting high debit swipe fees,” continued Sarasin, noting that “merchants and customers across America are the big losers.”

“Rather than bringing parity to an unfair situation,” added FMI’s SVP for government relations, Jennifer Hatcher, the ruling “actually makes it worse by increasing the costs on the most secure PIN debt transactions. It is irresponsible and certainly not reasonable.”

Leaders from the National Grocers Association (N.G.A.) were also outraged by the ruling, as evidenced in their remarks that described how “the nation’s largest banks succeeded in pressuring the Federal Reserve in its final swipe fee rule to increase the allowable debit swipe fees to over 21 cents, up from the proposed fees of 7 to 12 cents.” The increase in the allowable debit swipe fees charged by the largest banks with assets over $10 billion does not follow the law and provides little benefit for Main Street independent grocers and consumers, said Peter J. Larkin, N.G.A.’s president/CEO, who noted that the rule does little to level the playing field and will actually perpetuate the anticompetitive actions of the big banks.

"Every month the largest banks and credit card companies reap over $1 billion a month in debit swipe fees off the backs of Main Street businesses and consumers,” said Larkin. “It's extremely unfortunate that the Federal Reserve ceded to the bank's lobbying to increase the allowable debit swipe fees. Independent grocers and our customers are very disappointed that they will not benefit from the important reforms Congress intended. We fought for years to persuade Congress to reform debit interchange and we finally succeeded. This afternoon the Federal Reserve reversed our victory and every independent grocer in American has a right to be angry and disappointed.”

Christopher Coborn, president/CEO of Coborn’s, Inc. and chairman of N.G.A., echoed Larkin and Sarasin’s profound disappointment. “Retail grocers and other merchants have been fighting for over a decade to reform swipe fees and the anticompetitive rates and rules imposed on merchants. With the release of this final rule it is clear that the Federal Reserve failed in its responsibility to consumers, unlike in other countries where real reforms have been enacted and enforced.”

Sandy Kennedy, president of the Retail Industry Leaders Association (RILA), also weighed in by likening the Federal Reserve’s “about-face” with “[abandoning] the facts that [it] embraced in the December proposed rules, instead ceding to the wishes of the big banks and credit card companies.”

Data released by the Federal Reserve in December showed that although merchants paid on average 44 cents on every debit transaction, the transaction cost just 4 cents to process. By comparison, paper checks have been processed without any interchange fee for nearly a century.

“The Federal Reserve today has badly damaged its credibility,” said Kennedy, who pledged that the merchant community “will explore its options to implement the debit interchange relief that Congress intended.”