US Should Follow EU’s Lead in Swipe Fee Reform

The European Union is leading the way when it comes to reining in excessively inflated credit card “swipe” fees.  In a recent op-ed published in The Hill, Lyle Beckwith, senior vice president of Government Relations with the National Association of Convenience Stores, outlines how European Union regulators and Parliament is successfully transforming these fees and is in the process of securing protection for both their retail economies and consumers.
The U.S. needs to take a page out of their book.
 
For far too long, Visa and MasterCard have centrally fixed the fees that their banks charge, costing people worldwide billions of dollars.  By approving a 0.3-percent cap on the fees and a seven-Euro cents cap on debit card transactions, or 0.2 percent of the transaction value, whichever is lower, the E.U. locked in a rate that is a seventh of what U.S. retailers currently pay their banks.
 
Merchants and consumers in the U.S. pay the highest swipe fees in the world—up to 4 percent per transaction.  So, for every $100 worth of groceries, gasoline, or nights out on the town, merchants are forced to absorb another $4 despite the fact that it only costs the banks mere pennies to process the transaction.
 
Much to the banks’ chagrin, study after study continues to show how debit-card swipe reform here in the U.S. has given a much-needed boost to merchants and consumers.  In fact, noted economist Robert Shapiro estimates that consumers saved nearly $6 billion in the first year of reform and that those savings went on to support over 37,000 jobs.
 
Our counterparts in the EU, Australia and Canada are all finding ways to keep these escalating fees in check.  It’s time for us to follow their lead and pave a path that opens the way to a transparent and competitive market.

Europe Leads by Example in Fight Against Credit-Card Bullies

We Americans are justly proud of our free market economy, and yet it is the European Union that is taking the lead in breaking the grip of two big credit-card companies on the market and protecting consumers from abusive and unfair card payment fees.

Last week European lawmakers voted to impose lower caps on the “swipe” fees merchants pay every time a customer buys with a credit or debit card. The limit of 0.3% for credit and 0.2% for debit purchases will save businesses billions of dollars and allow merchants to pass the savings onto their customers.

Meanwhile, U.S. consumers pay the highest fees in the world. Up to $4 on every $100 charged to a card goes to banks. Swipe fees are so high because they are set in secret by Visa and MasterCard, which control 80% of the card business, leaving no room for negotiation.

Uncompetitive and unjustly high rates hinder our economy. Will the U.S learn from Europe's example and stand up against the bullies who are pocketing what could be consumers’ savings one swipe at a time on everything they buy with a card?

Step Towards Transparency: Fee Warning Labels on Cards

In an attempt to regulate the pre-paid debit card market, lawmakers have proposed putting disclosure labels on the cards. They would highlight most common fees and warn consumers against some potential additional charges.  

Pre-paid debit cards are a very convenient and popular method of payment for many, but they are loaded with fees. Just like swipe fees, those surcharges are pretty much hidden from the card users. Neither banks nor credit card companies go out of their way to inform clients about swipe or transaction fees, overdraft, ATM, replacement, maintenance and a long list of other charges that can cost you as much as $360 a year. So maybe lawmakers should be thinking about warning labels for all cards, not just pre-paid.  

We can't argue with the point that warning labels alone wouldn't fix the issue of inflated card fees. Consumer Program Director at the U.S. Public Interest Research Group Ed Mierzwinski says:

 “If they’re not going to ban bad fees, will the disclosure require a skull and crossbones next to an overdraft fee? If you’re not banning the worst fees, it doesn’t do much good to tell consumers only about some fees but not all the fees.”   

Disclosure labels might not be a perfect solution but they would sure be a huge step towards transparency that electronic payments system lacks right now.

Baseball Takes a Swing at Excessive Swipe Fees

The high cost of credit card swipe fees is getting more attention these days and it’s not just from Main Street retailers. America’s favorite pastime, baseball, has now stepped up to the plate and joined the fight against these skyrocketing fees as the Minnesota Twins just levied an antitrust suit against Visa and MasterCard, accusing them of price-fixing swipe fees and monopolizing the marketplace.

Make no mistake about it, this insidious fee impacts businesses of all shapes and sizes. Any purchase paid for by plastic is subject to a swipe fee of two to four percent of the price of the transaction whether you are buying a ticket to a baseball game or picking up a gallon of milk from the corner grocer.

Take, for instance, the cost of a Super Bowl ticket from earlier this month. The face value of tickets ranged anywhere from $500 to $2,600. Two percent of $2,600 is $50. If that ticket is sold at the average $4,300 resale price through a ticket dealer, the bank will take in another $86. That’s nearly $150 in swipe fees on a single ticket and with 83,300 seats in the MetLife Stadium, the banks and credit card companies brought in millions of dollars for transactions that could have been done profitably for mere pennies. Given this, it’s no small wonder that families in the United States pay an estimated average of almost $500 a year in swipe fees.

For more on the Minnesota Twins’ lawsuit against Visa and MasterCard, see here.