Small Banks Benefitted, Not Harmed, By Durbin Amendment

Visa and MasterCard Under FTC Probe

In a recent report, the Federal Trade Commission has taken a close look into debit card transactions and found that small banks have not been hurt by the Durbin Amendment that lowered swipe fees charged by card companies and banks with assets above $10 billion. The report also announced that the FTC is investigating Visa and MasterCard for practices that might have prevented merchants from using lower cost processors of debit card transactions -- in violation of the Durbin Amendment.

From the report:

“…(I)nterchange fees paid to exempt issuers are higher than those paid to non-exempt issuers. A recent report by the General Accountability Office also concluded that ‘community banks and credit unions have not, on average, experienced a significant decline in their debit interchange fees…. This is consistent with early reports that the payment card networks had adopted a two-tier fee structure for exempt and non-exempt issuers.”

Doug Kantor, counsel to the Merchants Payments Coalition said:

“The FTC report confirms what merchants have been saying all along, that after the reforms small banks and credit union would not only not be harmed by debit but also would benefit from reform, along with consumers, merchants and the overall economy,”

For more information read Merchants Payments Coalition press release here and FTC report here.

Facts About The Broken Credit Card Swipe Fee System

Current swipe fee system is not working and it needs improvement, clarity and government oversight. Right now it is completely controlled by Visa, MasterCard and major banks that charge merchants unjustifiably high transaction fees that significantly reduce business owners’ profit margins. Retailers can’t opt-out or comparison-shop. U.S. card fee system lacks transparency, competition and is almost impossible for merchants to decipher.

Facts:

• In the U.S., banks take between 2 and 3 percent of every credit card purchase.
• The average profit margin for U.S. merchants is 1-3 percent. That means the swipe fees going to the banks equal or exceed the business owner’s profit on each transaction.
• Right now, many small business owners don’t even know the cost of each transaction because the system dictated by the credit card companies and the banks keeps fees hidden and remarkably complex.
• Currently, Visa has over 70 swipe fee categories while MasterCard has over 240 different categories.

Swipe fees are out of control and constantly growing, even though with today’s technology the actual cost of processing credit card transactions should be minimal and U.S. has the highest fees in the world hurting both merchants and consumers.

Facts:

• Today, hidden swipe fees are costing average consumers hundreds of dollars a year – no matter how they pay for their purchases.
• U.S. swipe fees are 7 or 8 times higher than the standard European rate on each transaction
• Hidden swipe fees cost Americans more than all credit card annual fees, cash advance fees, over-the-limit fees, and late fees combined
• Hidden swipe fees cost Americans more than all credit card annual fees, cash advance fees, over-the-limit fees, and late fees combined

For more facts about swipe fees read:

• The Facts About Debit Reform
• The Facts About Credit Card Swipe Fees
• “Swipe Fee” Reform – International Lessons

A Roundup of Credit Card Ripoffs

Major banks and credit card companies have been caught red-handed misleading their customers with deceptive credit and debit card fees. The Consumer Financial Protection Bureau, agency established last year to protect consumers from unfair and abusive practices of financial institutions, ordered Bank of America, American Express, Capital One and Discover to refund $425 million to their customers.

Sacramento Bee personal finance columnist Claudia Buck lists a few of credit card fee scams used to rip-off consumers:

• “Bank of America routinely processed debit transactions in order of highest to lowest amounts. Instead of debiting them chronologically in the order they occurred, the bank started with the highest amount - say a $1,000 rent payment. If that exceeded what was in the person's bank account, then every subsequent debit charge racked up overdraft fees, which typically are $35 per transaction. As a result, some consumers got dinged thousands in overdraft fees.”       

•  “American Express: Three AmEx subsidiaries were ordered to pay $85 million to about 250,000 cardholders for various illegal credit card practices between 2003 and spring 2012. The violations "occurred at every stage of the consumer experience, from shopping for cards, to applying for cards, to paying charges, and to paying off debt, " said the CFPB." 

•  “Capital One's call centers targeted consumers with low credit scores. When those customers called to activate their credit cards, "high-pressure" salespeople were misleading about the cost, eligibility and benefits of various products, such as job-loss "payment protection" or credit score monitoring.” 

 You can read Claudia Buck’s article here.