Game. Set. Match. New Study Shows Swipe Fee Reform Didn’t Kill Free Checking

Ever since the idea of debit swipe fee reform came to the fore, the banking industry has been peddling doomsday scenarios about how lower caps would negatively impact consumers.  It would, they argued; mark the end of free checking accounts.  But a new comprehensive report just released by the Kansas City Federal Reserve has punctured that claim, exposing it as nothing more than a bogus and idle threat.

According to the report, which looked at checking fees before and after debit reforms were put in place, free checking actually became more available post-regulation.  In fact, the share of small banks offering free checking rose from 37 percent to 44 percent from 2011 to 2012.

What’s even more compelling is that the study proves what many advocates of swipe fee reform have been claiming from the very beginning:  competition in the marketplace benefits consumers.  As the report notes, “free checking has expanded most in cities and regions where banks are engaged in vigorous competition: banks in such markets may offer free checking to attract customers from other banks or to ensure retention of their own established customers.” 

So, despite what the big banks would have us believe, it turns out that government intervention did not wreck havoc and bring things to a grinding halt.  It did just the opposite.

           

It’s time now to use this evidence as the basis for curbing the escalating costs of credit card swipe fees, which have tripled in the last decade for no discernable reason since advances in technology should have driven down the processing costs to banks.  No good can come from continuing to allow Visa and MasterCard to control 80% of the market.  This status quo stymies competition in the marketplace, which only ends up hurting both consumers and merchants.

There’s little doubt that the banks and credit card companies will continue to use consumers as their straw man in order to protect the windfall of profit they rein in from swipe fees.  But the facts, as seen in the Kansas City Fed’s report, have exposed their line of reasoning as nothing more than a pack of lies.  They should not fool us any longer.

To learn more about the Kansas City Federal Reserve’s study, read here.       

The Fed Needs a Do-Over

Last week, merchants continued their fight for lower swipe fees when they filed a brief in support of U.S. District Court Judge Richard Leon’s July 2013 decision to reject the Federal Reserve’s implementation of swipe fee regulation.  (see the Wall Street Journal’s article Retailers Make Case for Lower Debit Fees).

While Judge Leon’s ruling marked a victory for small businesses and consumers across the country, the Fed, with ample support from the banking industry, chose to appeal the decision, setting the stage for both sides to argue their case before a three-judge panel in January. 

But in the midst of all this legal wrangling, it’s important to take stock of the facts lest we miss what is really at stake here.

As it stands now, credit and debit card swipe fees are a cash cow for the banks.  They charge anywhere from 2 to 4 percent of the total bill for credit cards and 24 cents a swipe for debit cards, raking in nearly $50 billion a year off of the fees alone.  This in turn trickles down into raising prices for consumers and squeezing merchants’ bottom lines. 

That’s a tough pill to swallow when you realize that the cost to process these transactions is small, only a few cents per swipe.

To make matters worse, when it comes to credit cards, Visa and MasterCard control 80% of the market and have manipulated the system so that all of the banks that issue their cards agree to charge the same fees.  There’s no room for competition and merchants cannot negotiate on the price.

The end result has been that swipe fees are the fastest-growing expense for merchants despite the fact that technological advances have actually made it less expensive to process the transactions.

The Durbin Amendment represented the first step to rectifying this inequity as it called for debit fees to be reasonable and proportional to what it costs banks to actually process those transactions.  And while the banks lobbied hard against such caps, it should be noted that this regulatory shift ended up benefiting retailers both large and small and gave a much-needed boost to the country’s economic recovery.

Take, for instance, the findings in a new comprehensive report by noted economist Robert J. Shapiro.  It found that in 2012 alone, reducing the swipe fees for merchants actually put $5.8 billion back into the hands of consumers through lower prices, which led to sufficient increased spending to support 37,501 new jobs.  Savings and job gains would have been substantially larger—to the tune of an additional $2.79 billion in consumer savings and 17,824 jobs—if the fees had been cut to 12 cents per debit card transaction (as originally recommend by the Fed) and 24 cents for credit cards.  

Even at the lower caps, banks have enjoyed a perfectly robust profit margin.

Let’s be clear: merchants don’t mind paying for the processing service.  But there comes a point when enough is enough.  Currently, the banks are rigging the system by creating an environment where merchants are forced to pay inflated, price-fixed costs within a structure that is not competitive or transparent. 

Judge Leon laid the groundwork to righting this wrong.  It’s time for the Fed to take a do-over.  They need to end the unconscionable price gouging and give relief to merchants and their customers once and for all.

Create Jobs By Ending The Great Swipe Fee Rip-Off

Below is an oped by Doug Kantor, counsel for the Merchants Payments Coalition, that RealClearPolitics.com recently published. You can find it here.

Even though the monthly jobs report went unreported due to the government shutdown, recent ones from the U.S. Department of Labor have been sending a clear message: If we want to quicken the pace of the economy recovery we must do more than what we are doing.

A recent study found that over 154,000 jobs could be created annually if debit card swipe fees were limited to 12 cents a transaction (as originally proposed by the Federal Reserve) and credit card swipe fees were limited to 24 cents -- amounts that still allow credit card companies and the banks that issue the cards to realize a healthy profit, given the low cost to process card transactions.

Banks make money on debit cards even without swipe fees because it’s the cheapest way for the banks to give customers access to their money. But banks are charging anywhere from two to four percent of the total bill for credit cards and 24 cents a swipe for debit cards. That amounted to about $50 billion for the banks in 2012 or over $400 for every American family.

Visa and MasterCard have a virtual lock on the marketplace, controlling 80 percent of all card transactions. They set the fees the banks charge so that the banks don’t compete on price. That has made swipe fees the fastest-growing expense that merchants face.

Noted economist Dr. Robert J. Shapiro recently demonstrated the benefits of reforms.

Shapiro’s comprehensive study showed that the reduction in debit swipe fees under the Federal Reserve’s regulation generated almost $6 billion in lower prices for consumers and $2.6 billion in merchant savings in 2012 and those savings supported 37,501 new jobs.

Shapiro went on to demonstrate ways in which swipe fees continue to hamper overall economic growth and harm small businesses across the country.  He found:

- Savings and job gains would have been substantially larger if debit swipe fees had been cut to 12 cents as originally recommended by the Federal Reserve Board. If that cut had been implemented, an additional $2.79 billion would have been generated in consumer savings, $1.2 billion more in merchant savings and an additional 17,824 jobs would have been created.

- If swipe fees for all credit card transactions had been held to the same level as debit fees in 2012, consumers would have saved an additional $15.4 billion and merchants would have saved another $6.9 billion, which could have supported 98,600 additional jobs per year.

- With both debit and credit reform fully in place, consumers and merchants could have realized total annual savings of $34.9 billion, supporting a total of 153,976 additional jobs every year.

Federal regulators, the White House and Congress should be looking for ways to spur the economy, create jobs, and lighten the burden on small businesses. Swipe fee reform has already shown more success doing that and what’s been done to date is just a small taste of what should happen. With transparent and competitively set fees, the gains would be much greater.

Doug Kantor, Counsel, Merchants Payments Coalition

Sounding a False Alarm: The Big Banks & Free Checking

Memo to banks: Do you have free checking or not?

Big banks have proclaimed rather loudly that they are being forced to do away with free checking allegedly because of lost revenue from debit card reform.  But guess what?  They did a survey and found plenty of free checking, and their own lobbyist, Nessa Feddis of the American Bankers Association, even said as much in a recent article:  “… most people still pay nothing for the great service banks provide across multiple convenient channels.”

A 2010 survey conducted by the ABA, for example, shows that 53% of respondents did not pay anything for their checking account. Three years later, the same survey found that 55% of bank depositors do not pay for checking, which suggests that free checking has actually increased during the post reform era.  

What’s more, additional studies released by moneyrates.com and bankrate.com show that the monthly service charges banks bill consumers are not even related to debit card swipe fees.  Take, for instance, the fees banks levy on customers for checking accounts.  Following debit reform in October 2011, these fees at the large banks went down and then rose slightly later.  Fees today are about the same as they were before reform, demonstrating that the ebb and flow of the fees does not correlate with swipe fee changes but rather shows the independent market dynamics of consumer checking fees.

Long before the Durbin Amendment was enacted, debit card swipe fees were skyrocketing.  In the last decade alone, they have tripled but there has been no corollary decrease in the fees banks impose on their customers.  And as banks would cry us a river about how the lower cap fees are hurting their bottom line, we only need to look at the numbers again to see that their argument doesn’t hold any water.  No bank that was impacted by the Durbin Amendment is currently facing anemic profit margins.  In fact, it’s quite the opposite. Wells Fargo and other banks have recently reported huge earnings.  And, MasterCard itself just posted a significant growth in profits during the second quarter, reporting that they are up 21% from a year ago.

The banks’ phony argument about free checking accounts is just another attempt to distract federal regulators and Congress from the real problem, which is their abuse of Main Street businesses and consumers in the debit and credit card marketplace.  Debit reform was needed and now we need credit swipe fee reform or else consumers and merchants will continue to be squeezed while the banks rein in sizeable profits at our expense.

U.S. Military Feels an $86 Million Pinch from Rising Credit Card Swipe Fees

The crippling impact of swipe fees on credit cards has extended beyond the civilian marketplace and has infiltrated the U.S. military, further proving the need for legislative reform to rein in these exorbitant costs.

Swipe fees are the charges credit card companies set and banks levy on merchants for accepting their credit cards.  According to recent documents, the processing expenses at the Army & Air Force Exchange topped out last year at $86 million, critical profits that the military wants to funnel back into its own community to bolster its quality-of-life fund.

The predicament the military finds itself in shines the spotlight yet again on the broken system in which the swipe fees for credit cards are determined.  The costly and deceptive practice is nothing short of price-fixing.  Here’s why:

Visa and MasterCard control 80% of the credit card market.  Given their widespread presence, they have been able to manipulate the system so that the banks that issue their cards agree to charge the same swipe fees in concert with Visa and Mastercard even though they set their own prices on every other fee and rate.  All of this is secretly done behind closed doors, preventing merchants from being able to shop around and get better deals.  This kind of collusion is illegal in other parts of our economy and it should be here as well.

The fall out from this corrupt scheme has resulted in consumers paying more for goods and services regardless of whether they are paying with cash or by check or credit card while businesses, particularly small ones, are unable to grow and many struggle to even stay open.

For decades, merchants have been carrying the heavy burden of swipe fees, paying up to 4 percent of each sale back to the credit card company to ostensibly cover the cost of processing the transaction.  Business owners have had little to no recourse to avoid the fees, which have become a significant operating expense rivaling salaries and employee benefits.  The fees in 2011, for instance, rose to $30 billion for credit cards and $20 billion for debit cards.  Keep in mind that the actual cost to process a credit card transaction is approximately 4 cents, no matter the total amount of the transaction.

Credit card swipe fees have more than tripled in the last decade even in the face of new technology and have driven up prices for the average household by more than $250 per year.  Moreover, swipe fees in the U.S. are higher than any other country in the industrialized world, about eight times higher than in the European Union, and there is nothing currently on the books to stop them from rising or bring relief to consumers and Main Street businesses.

The military’s frustrating experience with escalating credit card swipe fees is just another chapter in this long battle to level the playing field and bring transparency and competition to the marketplace.  But until lawmakers close the opaque loophole that the banks are unfairly profiting from, nothing is going to change.  And in the absence of any meaningful reform, consumers and merchants of all stripes will continue to feel the pinch and pay the price.

Visa Lowers Swipe Fees in Europe But Stiffs US Merchants & Consumers

Billions of dollars are paid each year in swipe fees, and merchants accepting credit cards and paying the fees are not the only victims. We all cover the cost of credit card fees in the form of higher prices. There’s no competition in the U.S. swipe fees market, and all banks agree to charge the same amounts dictated by credit card companies. Nobody is stopping Visa or MasterCard from this price-fixing, which results in fees that are outrageously and unjustifiably high.

Now we learn that Visa Europe has proposed lowering swipe fees in Europe by 40% to 60%. This significant reduction would bring Visa’s fees down to only 0.3 percent of every purchase and would be very beneficial to European merchants and consumers.

So, why should U.S. merchants and consumers pay up to 4 percent of a purchase to swipe credit cards? What's different from U.S. purchases and Europe purchases?

Nothing.

Fees in U.S are eight times higher than existing European rates. Americans pay the highest fees in the world but while other countries took measures to limit the fees, in U.S. a credit card swipe fee reform is still desperately needed.

In the latest press release by the Merchants Payments Coalition, Dough Kantor, group’s counsel, says:

“European regulators are holding Visa’s feet to the fire for their outrageous swipe fees – even though the fees in Europe are a tiny fraction of what they are in the United States. There is no reason for rates to be as high as they are. This should be a wake-up call that credit card swipe fee reform is long overdue here.”

You can read the entire release here.

Credit Card Companies Make A Killing At Tax Time

You may be surprised to learn that if you paid your tax bill with your credit card this week, you paid a hefty, extra fee. The fee cost you anywhere from 2 to 4 percent of your total tax bill, and it didn't go to Uncle Sam either.

It went directly to banks and credit card companies. Bloomberg reports that if all U.S. residents paid their income and estate taxes by credit card, banks would rake in about $6 to 8 billion -- more than half of the IRS' proposed 2013 budget.

Granted, not all residents pay their tax bills this way, but more and more of us no longer use checks. 

Unlike Uncle Sam, merchants do not pass along the cost of what are known as "swipe fees" to their customers. They can't afford to; the marketplace is too competitive. Instead, some of that costs is deducted from their profits and calculated into consumer prices.

Banks and credit cards basically agree what the swipe fee will be or price fix, an activity that is usually against the law. As a result, swipe fees have tripled in the past decade and have become the second highest expense for merchants after labor. Meanwhile, in Europe, consumers and merchants pay swipe fees that are EIGHT times LOWER than what U.S. consumers and merchants pay.

Learn more about swipe fees here.

In Case There Was Any Doubt: Further Proof Debit Card Reform Increased Competition, Didn't Hurt Banks

In case there was any doubt about whether or not debit card reform was a good or bad thing for banks and the overall marketplace, Time.com banking writer Martha White weighed in today with this piece.

The big banks impacted by the Durbin Amendment, which cut debit card swipe fees by half, predicted doom and gloom not just for themselves but also for smaller banks and credit unions, exempted under the amendment.

It didn't happen. The Federal Reserve said it; the Kansas City Federal Reserve Bank said it; the GAO said it; and the FTC said it.

Instead of doom and gloom, banks -- even the big banks -- have been promoting debit cards stronger than ever, writes White.

"After an initial retrenchment, banks now are marketing debit cards as aggressively as ever. They’re even adding back debit card rewards programs, which many had discontinued in anticipation of the hit the regulations would deliver to their bottom lines."

Banks have been promoting debit as fast, convenient and secure and encouraging debit card use for big and small purchases- from a big plasma TV to a pack of gum. (Merchants suffer but banks make out big time on small purchases, charging 24 cents a debit swipe regardless of whether it's $1 or $100.)

"Besides looking for new customers, banks are trying to get current customers to use their debit cards more frequently. “Some banks are encouraging customers to use the card for small purchases,” Susan Wolfe says. After the swipe-fee rule kicked in, certain banks adopted the 24-cent cap as an effective floor as well as a ceiling. Since they earn the same amount if you buy a cup of coffee or a TV, they make out better if their customers use debit cards for lots of transactions, no matter how small."

Banks have even reintroduced rewards programs for debit cards in hopes of boosting fee revenue with increased volume of debit card transactions.

Read the entire article here.

How Credit Card Companies Make Money

Source: CreditScore.net

What Is Interchange?

source: visual.ly/fee fighters

States Need to Make Sure "Nobody Is Swiping Our Lunch"

Merchants refuse to pass constantly growing swipe fees onto customers paying with credit cards even though in most states they are allowed to do so. In today’s highly competitive retail market nobody can afford to push customers away.
 
In many places, like NJ, lawmakers have been very quick to introduce bills that would ban surcharging. In a recent article The Record columnist John Cichowski says such law would be a purely cosmetic fix to a problem that doesn’t exist. It might prevent sellers from adding an additional fee to credit card paying customers’ bills but it doesn’t stop credit card companies from charging merchants pre-set and unreasonably high fees that significantly reduce their profits and force them to raise prices for all customers. In the end, even customers paying with cash end up paying more.
 
To fix the swipe fee market, lawmakers need to look closer at the way those fees are set by Visa and MasterCard and force them and banks issuing the cards to compete for merchants’ business just like retailers compete for a customer.
 
“The people who pay these fees – either directly or indirectly — need lawmakers to dig deeper than cosmetic solutions to make sure nobody is swiping our lunch.” Cichowski says.
 
Read the rest of the article here.

Banks Mark Up Swipe Fees By 500%. Why? Because the Fed Won't Stop Them

In a recent report, the Federal Reserve found that it costs banks and credit card companies about 5 cents to process a debit card transaction. With all of our technological advances, that amount sounds reasonable, and debit card reform, as legislated in the Durbin Amendment, said banks should charge a "reasonable" fee for swiping their cards. Only problem is they don't charge 5 cents. They charge 24 cents, and the Fed is doing nothing about it.

It is a 500% markup! Unthinkable in any other marketplace.
 
The Durbin Amendment required the Federal Reserve to limit swipe-fees on debit cards that banks charge merchants and make sure the fees are relative to the actual cost of processing those transactions. New rules capped interchange fees charged by big banks at 24 cents, excluding institutions with less than $10 billion in assets. This reduction, however, remains grossly out of sync with the costs to swipe a card. The banks continue to profit unfairly from the swipe fee paid for by not just merchants but consumers in the form of higher prices.

Read the Merchants Payments Coalition’s press release on Federal Reserve’s newest report here.

Visa and MasterCard’s Secret Price-Fixing Keeps Swipe Fees Unreasonably High

Last year merchants paid $30 billion in swipe fees. That money could have gone back to the customers in form of lower prices if it weren't for credit card companies and banks that work together to set swipe fees in secret and make them unjustly high. Visa and MasterCard control the market and have all the power to dictate the prices the banks charge retailers when customers use their credit cards. The fee system is complicated and confusing. Merchants have no way of telling how much they will be charged in swipe fees until they get the bill. Visa and MasterCard have up to 240 different types of charges.

“Visa and MasterCard have a stranglehold on the market. They set the fees in secret and banks all charge the same thing rather than competing on price. If they price-fixed consumer fees they would probably go to jail, but because the fee is charged to businesses and hidden they have managed to get away with it.” said Doug Kantor,  a counsel to Merchants Payments Coalition in MPC latest press release on price fixing and hidden fees.

For more facts on price-fixing read this fact sheet by Merchants Payments Coalition.

Why Visa/MC Settlement Didn’t Fix Swipe Fee Problem

There’s no need for consumers to worry about swipe fees being pushed onto them by retailers just because Visa/MasterCard antitrust settlement allows merchants to do so in some states, says consumer advocate Ed Mierzwinski at the U.S. Public Interest Research Group in an article. He says the “checkout fee” or surcharge would be a sure way for business owners to lose customers, and they definitely don’t want this to happen.

The settlement has not fixed the broken swipe fee market, Mierzwinski argues. Merchants don’t think it’s fair to punish their customers for using a credit card and they will continue footing extremely high credit card fee bills.

Mierzwinski explains that the $6 billion payout in the settlement is a drop in the bucket compared to the amount retailers pay in swipe fees, especially since the settlement does not prevent Visa and MasterCard from raising the fees.

Moreover, it took away merchants’ right to ever sue the credit card companies over the fees or any payment technologies, even those that are not being used yet, no matter how unjust or illegal they might be. This gives Visa and MasterCard even more power in a market they already control.

Read this article by Ed Mierzwinski, Consumer Program Director at the U.S. Public Interest Research Group to find out more about why the settlement did not fix the swipe fee problem.

Banking Industry Wrong About Impact Of Durbin Amendment

Financial industry experts and three separate government agencies have confirmed that small banks and credit unions have benefitted from debit reform, putting to rest the banking lobby's negative and false claims about the impact of the Durbin Amendment.

Studies by the Federal Reserve, the Federal Reserve of Kansas City, the Federal Trade Commission and the Government Accountability Office have shown that fee revenues for banks exempted from the interchange fee limits have remained unaffected or have even grown thanks to the two-tier fee system mandated by debit reform for exempt and non-exempt banks.

As a result of the reform, small institutions can now compete with large banks and have attracted new customers with improved customer service and offerings.

For more information read the Merchants Payments Coalitions’ latest fact sheet: The Verdict Is In:  Small Banks Win With Debit Reform

Customer Dissatisfaction With Banks On The Rise

Americans don’t trust financial institutions even when it comes to their own banks and judging by the enormous amounts financial industry spends on public image campaigns and advertising, banks are well aware that their consumers are getting fed up with lack of transparency, high and unfair fees and poor customer service.

Doug Kantor, counsel to the Merchants Payments Coalition says:

“The big banks’ multi-billion dollar campaigns aren’t moving the needle on the favorability meter because they continue to stick consumers and Main Street businesses with unfair, hidden fees. With good reason, Americans still do not trust big banks”

The MPC has put together results of a few surveys that looked into Americans’ perception of banks. Findings show:

• 64% say they do not fully trust big banks.
• 87% do not feel their bank is transparent
• 68% do not perceive their bank as being “on their side
• 30% say they are sometimes surprised by unexpected bank fees
• 31% claim their bank’s fees are simply unfair
• Americans’ confidence in U.S. banks is at a record-low 21%, down from 23% in 2010.

Passing the costs onto the customer in the form of high fees is a sure way to drive them away. ATM fees, checking fees, debit and credit card fees, swipe fees are all on the rise with swipe fees being eight times higher in U.S. than Europe. No wonder Americans are not happy.

An Insider Talks: Banking Industry Admits Debit Reform Helps Small Banks

The banking and credit card industry has used small banks and credit unions for years as the excuse for resisting changes to their system of centrally price-fixing swipe fees. They insisted that smaller institutions would be hurt by the debit reforms that became law late in 2011. Now, an insider has admitted the truth – small banks are actually better off as a result of debit reform and bankers knew this all along.

On January 8, 2013, the American Banker ran an article headlined, “Durbin Exemption Proves a Real Edge for Small Banks.” The article was written by Lee Wetherington, Director of Strategic Insight for ProfitStars. In the article, Wetherington reveals that:

• “Studies by the Federal Reserve, [Oliver] Wyman and most recently the Government Accountability Office indicate that exempt issuers have experienced little if any compression in their signature debit interchange rates and virtually no compression in their PIN rates.”
• “According to Wyman, exempt issuers' gross margin per debit transaction is now more than double that of regulated institutions.”
• Small banks have an opportunity to capitalize on the most profitable part of the debit world – business accounts.
• Wetherington explained to small bankers that this would work to their advantage before the reforms came into being, but he was intimidated into silence by a banking association executive who insisted that bankers needed to deny the truth for the sake of “unity”.

Wetherington’s portrayal is completely consistent with other glimpses of the truth from the industry.

For example, Andrew Kahr authored an article in the American Banker on March 3, 2012 headlined, “Nevermind the Lobbyists, Durbin Amendments Helps Small Banks.” In it, he called small bank arguments that they would be hurt by debit reform “Poppycock.”

In fact, following Kahr’s article and a response from ICBA last year, the American Banker polled its own readers and found, “Sixty percent of online voters took the side of industry consultant Andrew Kahr, who wrote in a recent Viewpoint that the Durbin amendment will actually help banks under $10 billion in assets . . .”

And, industry analyst Eric Grover commented to American Banker in January 2011 that the card industry lied about the potential for small bank and credit union fees to go down in order to keep those institutions lobbying against reform. He said, “Initially, Visa executives said a dual schedule [of interchange rates for exempt and non-exempt financial institutions] was impossible . . . That was simply intended to scare credit unions and small banks to keep them lobbying."

All of these insiders verify what every objective observer, from the Federal Trade Commission and the Government Accountability Office to the Federal Reserve, has found: Debit reform has not hurt small banks and credit unions, it has given them a competitive advantage.

The big banks and their associations can keep scaring and bullying the rest of the industry into saying the sky is falling, but thankfully some out there are willing to say the truth – debit reform has been good for the vast majority of banks and credit unions.

Credit Union Survey Echos Other Reports: Durbin Amendment Works

In an interview with the Credit Union National Association, the Credit Union Times reported that credit union profits from debit cards have been largely unaffected by a reduction in the debit card swipe fee.

Just like recent reports by the FTC, the Federal Reserve and GAO, the CUNA survey shows that debit reform, as legislated by the Durbin Amendment, has benefited small banks, credit unions and consumers, disproving the big banks' false claims that reduced debit fees have harmed small banks and credit unions.

In a recent press release by the Merchants Payments Coalition, Lyle Beckwith, Sr. Vice President for Government Relations at NACS, talks about how big banks are misleading the public with false statements about the impact of debit card swipe fee reduction in order to avoid further reforms.

“The big banks have pushed the line that small banks are suffering as a way to stymie further reforms on rising swipe fees on credit cards, but the facts simply don't back them up,”

MPC’s full release can be found here.

Swipe Fees Drastically Slashing Supermarkets’ Thin Profits

Not many of us realize that when we quickly grab a $3 carton of milk from the neighborhood grocery store and pay with a debit card, the swipe fee that the store operator must pay the bank to process the transaction can be higher than the fee the store pays on $200 worth of groceries.

How can this be? Because the Federal Reserve is allowing banks to charge the maximum for a debit card transaction -- 22 cents -- under the Durbin Amendment, which reduced debit card fees from 42 cents a transaction.  The Durbin Amendment did not intend for banks to be able to charge 22 cents for a carton of milk or a cup of coffee, but that is the way the Fed is implementing the law.  A group of merchants have sued the Fed to make changes.

“These transaction costs have been eating into profit at an increasing rate,” says Bill Bishop, chairman of Willard Bishop, a consulting firm based in Barrington, Ill. “Retailers have been focused on trying to reduce them.”

Read more from Richard Turcsik, editor of Grocery Headquarters Magazine, here. 

BoA's Recent Move Proves Durbin Amendment A Success

The Durbin Amendment forced big banks to lower their swipe fees on debit cards and gave smaller banks a chance to compete with the financial giants. Bank of America’s recent cancellation of plans to charge for checking only proves debit reform is working.

Banks have been blaming the Durbin Amendment for everything wrong with the world, but as Doug Kantor, counsel to the Merchants Payments Coalition, wrote in a Huffington Post blog, debit reform has brought greater competition among banks to the marketplace.

 “The truth is, checking fees are set by competitive market dynamics, while swipe fees on debit cards haven't been. The fees were decided by Visa and MasterCard and every bank that belonged to one or the other charged the same thing - that looks just like price-fixing in every other part of the economy. The fact that swipe fees tripled over the past decade didn't prevent banks from increasing checking fees at the same time. Fluctuations in checking fees and other banking fees since debit reform are fundamentally the same as what was happening in the consumer banking market before the reforms were enacted with checking fees going up at the same or a lesser rate.”

In other words, debit reform forced big banks to compete for customers. The rest of Kantor's article can be found here.