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?

European Retailers Score Big Victory in Swipe Fee Battle

The E.U. continues to set the pace for swipe fee reform as the economic and monetary affairs committee of the European Parliament voted last week to cap the fees at 0.2% and 0.3% for debit cards and credit cards respectively.  The new legislation, which applies to domestic and cross-border payments, was a response to the ongoing impact of the fees on both merchants and consumers as well as the lack of transparency in how such fees are set.

Right now, the average swipe fee ranges from 0.2 percent in Denmark and the Netherlands, to more than one percent in Germany, Hungary and Poland.  The reform measures aims to standardize the governing rules between countries.

The European Commission states that the reduced fees could end up saving retailers six billion euros a year, a savings that could lead to lower consumer prices.

Despite the significant progress being made in Europe, the cost for U.S. consumers to swipe their cards remains exorbitant.  In fact, the fees, which can be as much as four percent of the total cost of the purchase, are eight times higher here than in Europe and other countries.

So, the question remains: what gives?  It’s time for our federal officials to follow the E.U.’s lead.

For more about the European Parliament’s recent vote, see here and here and here.

Image source: The Travelers Blog

The Banking Industry’s Meal Ticket

In her recent article Credit Card Gravy Train Is Crushing Consumers, Ellen Brown provides an excellent analysis of the banking industry’s profitable swipe fee scam and the burdensome cost to both merchants and consumers.

Most consumers don’t realize that every time they use their credit card, the retailer is charged an interchange or swipe of about two percent of the total purchase. Banks are able to charge this rate because Visa and MasterCard, the two biggest credit card companies, set the fees essentially in secret and then dictate the terms to merchants, who are left with no choice but to accept them if they want to stay in business. As Brown explains, two percent:

“…may not sound like much. But consider that for balances that are paid off monthly (meaning most of them), the banks make 2% or more on a loan averaging only about 25 days (depending on when in the month the charge was made and when in the grace period it was paid). Two percent interest for 25 days works out to a 33.5% return annually, and that figure may be conservative.”

In other words, the swipe fee results in big profits for the banks but puts a big squeeze on the rest of us from the merchants who are forced to absorb the fees to the consumers who are left paying higher prices to cover that cost.
Interestingly, Brown compares this fee to a private sales tax.

“A 2% merchants’ fee is the financial equivalent of a 2% sales tax—one that now adds up to over $30 billion annually in the US. The effect on trade is worse than either a public sales tax or a financial transaction tax, since these taxes are designed to be spent back into the economy on services and infrastructure. A private merchant’s tax simply removes purchasing power from the economy.”

It’s a sneaky game the banks are playing and it leaves merchants and consumers holding the bag while sapping an already vulnerable economy of the energy it needs.

(photo source: Ripoff Report)

A Unified Front: Retailers and Banks Join Forces Against Cyber Threats

As the fallout from the massive data breaches suffered by Target and others continues to play out, retailers and banks decided last week that it was time to band together to fight the ongoing cyber threats. Fifteen trade groups including the Retail Industry Leaders Association, the American Bankers Association and the National Restaurant Association put together a working group that will, among other issues, examine the latest payment technologies to identify which would have the greatest chance of thwarting future breaches and determine opportunities for potential action from Congress.

In a recent article in The Hill, Tim Pawlenty, chief executive of the Financial Services Roundtable and former Minnesota governor, described the current situation and unlikely union:

“…you can’t really make it better or improve it unless you look at it comprehensively. That involves a whole series of stakeholders, and we need to work together constructively to improve it. And this partnership is designed to try to bring people together to focus on the things we can agree on.”

The article points to one possible starting point for consensus and that is with the way in which companies notify customers of a data breach. Currently, dozens of states have varying laws that run the gamut but there is no uniform standard defining the protocol companies should follow. With so many cooks in the proverbial kitchen, the rollout of such notification is often disorganized and ineffective.

To read The Hill’s article, Stores, Banks Team Up to Fight Hackers, see here.

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.

Chip and Pin: Not a Simple Quick Fix

In her article, 'Debit or Credit' Becomes A Point-of-Fail, Kelly Jackson Higgins discusses how recent data breaches have spurred retailers, lawmakers and the banking industry to seriously rethink security options for card payment systems. She includes the following third-party observation:

"Banks have gone out of their way to make us [consumers] feel comfortable. They're just charging the retailers for this, but it's going to hurt the retail industry," says Avivah Litan, distinguished analyst with Gartner. "Maybe banks will now move on chip and PIN" sooner, she says.

While it is true that retailers pay a disproportionate share of fraud costs and the reality of recent data breaches will goad banks and retailers both to make changes, we must be sure that they are the right kind of changes. The move to a computerized chip embedded in the card is not the complete solution to fraud in the United States.

First, merely adopting the chip cards without the requirement of PIN numbers, as the credit card companies had proposed, is a half-measure that will not make customer data and card transactions wholly secure. Yes, the chip is extremely difficult to counterfeit but without the second layer of cardholder authentication offered by the PIN, it does not solve for lost or stolen card fraud or Internet fraud.

Secondly, it’s important to note that the standard called EMV that the major card brands, Visa and MasterCard, are pushing for is actually their proprietary technology and opens the door for them to extend their already-powerful duopoly. Merchants are concerned that adopting EMV will allow the credit card companies to maintain their dominance in this technological arena and as a result prevent a competitive market from forming, perhaps one that moves beyond cards to customers using their mobile devices to make purchases.

No good can come from this kind of non-competitive market. We’ve seen proof of that with the credit-card companies’ exorbitant swipe fees. If the duopoly of MasterCard and Visa stymie competition in technology, too, in the long run it only ends up hurting both consumers and merchants.

Card Fraud More Common in United States than Europe

As more information about the recent rash of data thefts comes to light and additional breaches are discovered, it is becoming ever more apparent that the credit/debit payment system in the United States is broken. New statistics only bolster that reality.

Take for instance a recent Nilson Report, which showed that while the U.S. accounts for only 27% of the credit card transactions worldwide, it is in fact responsible for 47% of card fraud. Or a report from Aite Group and ACI Worldwide, which surveyed more than 5,000 consumers in 17 countries and found that the United States, along with Mexico, is more susceptible to fraud with 42% of respondents saying they have been victims of such fraud.

Why are these data breaches happening at a greater rate in the U.S. than say in Europe?

Simply put, it is because the United States continues to rely on an outdated magstripe payment card whose required signature authorization can be easily plagiarized and used to create a host of fraudulent cards. Most European countries, on the other hand, follow the EMV standard, which uses a microchip technology that offers consumers, merchants and banks much greater security.

But it will take several years for the EMV standard to be put into practice in the United States, as it requires banks to update their card systems. This promises to be a costly investment and banks no have motivation to make that investment because merchants bear the lion’s share of the consumer fraud costs.

In the meantime, American consumers remain sitting ducks as our credit and debit cards remain acutely vulnerable to criminals.

To read more about the Aite Group/ACI Worldwide survey, see the Forbes article here.

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

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.

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

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.

Unfairness of Swipe Fees

Swipe fees are a huge burden for small business owners across the country. Ted Burke, a restaurant owner from California, talks about how powerless he feels when faced with credit card companies’ unrestrained ability to set non-negotiable and unreasonably high rates.

“Business owners like me can negotiate virtually all of our costs, but we are powerless to negotiate swipe fees. This is because the major credit-card companies set rates on behalf of the banks that offer their cards, not on the cost of processing. That is the opposite of the free enterprise system, it is not right and it costs consumers as well as merchants.”

As the prices go up, banks raise their fees even though it doesn’t cost them a penny more to process transactions. Mr Burke says:

“Typically, this kind of technological improvement drives down costs. The swipe fees, however, just keep going up. 

Moreover, banks are double-dipping - they are already protected from inflation because credit swipe fees are assessed as a percentage of each sale. Thus, when menu prices go up, so does bank revenue. Yet the banks keep raising the percentage rate to take a bigger bite, making transactions more expensive. 

I view the banks and credit-card companies as unwanted business partners. They do not work anywhere near as hard as I do, yet they collect nearly as much in fees as the average restaurant earns in profit.”

Read the rest of Ted Burke’s article here.

Holiday Shoppers Be Aware

With the holiday season almost here and shoppers crowding stores and restaurants, Scott DeFife, Executive Vice President for Policy & Government Affairs for the National Restaurant Association, reminds us that every time we use our credit card, banks and credit card companies charge merchants a hidden and unjustified swipe fee.

With Visa and MasterCard dominating the market, business owners cannot negotiate swipe fees and the only choice they have to avoid them is not to accept credit cards, which would be the kiss of death.

 “Another clear indicator of a broken market is the fact that restaurant owners can’t negotiate swipe fees the way they can negotiate for nearly every other business expense. It’s a take it or leave it deal – either accept the fees as they are or don’t accept plastic. That’s not a real choice if you want to attract customers. And, merchants can’t even be sure that the fees they pay are correct. When a customer gives a credit card to the cashier or server, there is no way of knowing what the fee will be for that card, since the rates vary by card and by reward program.”

Lyle Beckwith, senior vice president for government relations for the National Association of Convenience Stores, calls swipe fees “a hidden tax” that goes directly to banks. Not many know about it and yet we all pay the price:

“Even though swipe fees are invisible to consumers, they result in higher prices, even for those who mostly pay with cash and rarely use a card. The only difference between swipe fees and taxes is that the $50 billion in revenue that the swipe fee generates every year goes directly to banks rather than to the government. Every American household on average pays about $427 a year in the swipe fee “tax.””

Read DeFife’s article here and Beckwith’s article here.  

The Market Power of Visa and MasterCard

New York Times Economix blogger Nancy Folbre who earlier this month wrote about unfairness of swipe fees has taken a closer look at how extremely complicated the fee system is for merchants to maneuver and how business owners are left with no choice but to pay exceedingly high fees:

“This market structure is hard to discern, because cards themselves are issued by different banks, with different terms — and they come in many different colors. Among issuers, the top 10 credit-card-issuing banks accounted for more than 90 percent of outstanding credit card debt in 2009.”  

“Both the payment networks and the card issuers operate in a “two-sided” market — selling their services both to consumers and to merchants. Consumers can engage in at least some comparison shopping — considering both terms of service and interest rates charged by different providers.”  

“Small businesses, however, have long been limited in their ability to steer customers toward credit cards that charge lower fees, partly as a result of payment-network rules and partly because they fear inconveniencing their customers and reducing sales.” 

“Payment networks and card issuers know how to exploit that fear, and they have a common interest in extracting as much revenue as possible from the merchants who rely on their services. Their market power puts them in a strong position to do so.”

 To read the entire blog, see here.

Credit Card Industry Buries Merchants In Paper, Killing Their Bottom Line

This article in a trade publication for tire dealers demonstrates how the credit card industry buries merchants in paper about the various swipe fee options merchants pay to banks and credit card companies when customers use their debit and credit cards. By the time merchants read all the fine print, they are never sure if they have the best deal or the worst deal. All they do know is the fees -- worth $50 billion a year in revenue to the card industry -- is killing their bottom line. Here are just a few excerpts from the article.

Read the entire article here:

To Fee or Not To Fee
Modern Tire Dealer

.... Unraveling the mystery of credit card fees ... it’s important to make sure every tire and service shop understands the credit card jargon: Discount rate — price paid by business to process payment transactions. Usually consists of a combination of items:

1. Interchange rates — rates are determined by card associations, i.e. VISA, Mastercard, and paid to the issuing bank, and are usually a percentage plus a transaction amount.
2. Assessments — fees determined and paid to the card associations (approximately 11 basis points).
3. Mark-ups — profit add-ons by your merchant services bank.
4. Other fees — authorization request fees:

• monthly statement fees,
• monthly minimum fees,
• batch fees,
• customer service fees,
• annual merchant fees, and
• chargeback fees.

NOTE: These may vary as to how they’re labeled on monthly statements. If it seems like there is an endless list of fees, this is just the tip of the iceberg. There are also a variety of methods in which merchant service programs are marketed by service processors. Here are some examples of merchant service programs which are offered to dealers:

• Interchange plus — the interchange rate plus a bank markup.
• Fixed rate plus — a minimum interchange rate, plus excess of interchange in excess of minimum.
• Tiered pricing — transactions put into tiers based upon transaction types.
• Bill backs – a variation of interchange plus.

The next issue is making sure that your transactions are charged the lowest possible rate available per the program that you are with. David Eckroth, controller for Northwest Tire Inc., Bismarck, N.D., spoke to his 20 Group dealers recently on the topic of credit card fees: “Managing processing costs is critical in keeping the fees as low as possible. One way to do this is to avoid downgrades, or transactions which do not meet the card association requirements to qualify for lowest interchange rates. The main reasons for downgrades are: key entering rather than swiping; not using AVS (Address Verification Service) on key-entered transactions; not settling transactions daily; and not answering questions for input items such as sales taxes.”

Managing card disputes 

Sometimes the bank will “chargeback” a transaction (cost of goods plus fee) when the customer disputes a charge. When this happens, the amount is sometimes automatically deducted from your checking or savings account along with any chargeback fee.

While this doesn’t happen often in tire and service transactions, it can happen and dealers should be aware of this potential action from an unhappy customer.

A cardholder can initiate a chargeback within 120 days of the delivery date of the products and/or services. A card issuing bank also can initiate a chargeback within seven to 75 days.

Some chargebacks can be reversed and resolved in your favor without the loss of the sale. It’s important that the dealer provide all of the information regarding the transaction, such as proof of delivery, signed receipt, invoice, etc. Document how this information is provided through the Electronic Integrated Dispute System (eIDS) within 14 days of the chargeback issuance date.

Preventing credit card disputes 

Of course the best way to avoid card disputes is to satisfy customers even if they end up with a higher ticket than anticipated. Eckroth provided a guide on how to prevent card disputes before they end up being a problem.

Eckroth also suggests that at least once a year you should request a review from your credit card merchant services processor.

Ask to review the makeup of cards accepted, a review of the history of any downgrades, and have them provide a detailed cost analysis of all transaction fees.

How to reduce credit fees

Hank Feldman, president of Performance Plus Tire and Automotive in Long Beach, Calif., recently won second place in his 20 Group’s Best Idea Contest for giving his group a simple three-step approach to reducing fees. If dealers follow these steps, they will secure the most competitive fees, he says:

1. Quote: Get quotes at least twice a year; they can be done over the phone; use only direct processors; and send two months of statements for review.
2. Negotiate: Always ask for the interchange rate plus the lowest possible markup; always ask for the lowest possible per-transaction fee; ask for same-day credit at the bank (24 hours); ask for free equipment; and offer your existing provider the opportunity to match rates.
3. Monitor: Request monitoring of transactions to ensure your account is set up correctly, avoiding increased interchange rates; get verifiable references; and ask for a dedicated account representative.

... Take these steps to prevent credit card disputes Provide a superior customer experience Card not present at point-of-sale

1. Indicate business name and customer service phone number on cardholder statements.
2. Email order, shipment and credit confirmations.
3. Provide accessible live customer service agents.
4. Clearly indicate your return and shipping policy and request that shoppers “click and accept” the policies before the transaction can be completed.

Manage fraud at the time the transaction is processed Card present at point-of-sale

1. Always obtain an authorization for the full amount, at the time of the purchase and via your terminal.
2. Always swipe the card (do not key enter), review customer signature and verify the card number.
3. Refuse a card which is declined for authorization.

Card not present at point-of-sale

1. Use Address Verification Service (AVS) and CVV2, CVC2 and CID (three-digit code) verification. These are security features for credit card transactions on the Internet and over the phone. CVV and CID represent Card Verification Value (varying with the card issuers).
2. Obtain signed proof of delivery.

Manage chargebacks and retrieval requests Both card present and card not present at the merchant’s point-of-sale

1. Review chargebacks and retrieval requests regularly.
2. Respond promptly to retrieval requests.
3. Research and manage your chargeback and retrieval requests on ClientLine.
4. Gain efficiencies by resolving disputes online, with Electronic Integrated Dispute System (known as eIDS).
5. Use the online Resolve Chargeback Tool.

NY Times Blogger Weighs in On Merchants' Side in "The Big Swipe"

University of Massachusetts economics professor and New York Times Economix blogger Nancy Folbre weighs in on the swipe fee debate, stating that "basic economic principles" side with the merchants' arguments that swipe fees on debit and credit cards are unfair and too high. She writes:

"Basic economic principles strengthen their case. Banks that are “too big to fail” are also big enough to bully smaller businesses. Since the early 1970s, the five largest banking institutions in the United States have tripled their share of financial assets from 17 percent to 52 percent. The retail sector is more diverse and more competitive: In the first quarter of 2012, the median profit margin was 7 percent for discretionary consumer goods and 8 percent for consumer staples, compared to almost 16 percent for financials.   

"The credit card industry is even more concentrated than banking. In 2010 Visa and MasterCard alone accounted for 82 percent of all credit receivables outstanding. For many years they made it difficult for merchants to offer a cash discount, or better terms to customers with less expensive cards. Left with no practical option other than declining to accept credit cards altogether, which would hurt their sales, merchants had little choice but to pay ever-higher swipe fees." 

 Read more of her blog, The Big Swipe.

Credit Card System Broken & in Need of Fixing

The Hill reported recently in its "On The Money" blog that retailers and banks are "ready to go another round over credit card swipe fees."

Reporters Vicki Needham and Peter Schroeder wrote:

"Retailers are pushing for changes to credit card swipe fees nearly a year to the day after they triumphed in one of the biggest lobbying battles ever. 

"The Federal Reserve lowered the fees that merchants are charged when customers swipe a debit card last year, handing a decisive win to retailers after a multi-million dollar advocacy war with big banks. "

"With that victory notched, retailers are coming back for more, this time setting their sights on a credit card market overhaul they say would end a bank monopoly on pricing and increase competition."

"Retailers say they have canvassed Capitol Hill and have found broad agreement that the credit card system is broken and in need of fixing."

Read more here.

Federal Reserve Overstepped Bounds By Catering To Banks & Ignoring Congress

In a Washington, DC federal courthouse this week, lawyers for merchants made a convincing argument that the Federal Reserve overstepped its bounds by catering to banks instead of doing what Congress instructed in legislation reforming debit card swipe fees.

Congress, they told the court, was clear about setting reasonable debit swipe fees and ensuring greater competition among card networks. It’s also clear that the Fed ignored Congress.

Fees charged to swipe both debit and credit cards for purchases total about $60 billion in revenues for banks and credit card companies, costing U.S. households hundreds of dollars a year. For merchants, swipe fees are the second highest cost for them, after labor. Swipe fees also have tripled since 2004, even while technology has lowered the cost of card transactions.

Part of the Dodd-Frank law included the Durbin Amendment, which sought to bring competition to debit card networks that process the transaction and to reduce the fees for using debit. The amendment instructed the Fed to set debit swipe fees that are “reasonable” and “proportional” to the banks’ costs. The Fed had determined the cost to be 5 cents a swipe.

After Durbin passed, the Fed dropped debit swipe fees from an average 42 cents a transaction (over 10 times actual cost) to 12 cents. The big banks, however, immediately leaned on the Fed, forcing their regulator to set the debit swipe fees at 21 cents, five times the banks’ actual cost, plus .05 percent of the transaction and an additional one cent for fraud prevention.

The banking lobbying convinced the Fed to cram the many costs of running a bank into an overinflated fee, rather than focusing on the banks’ cost of handling a debit transaction. The Fed also undercut Congress’ intent to make the debit card industry more competitive by not allowing merchants to choose among networks to process a sale.

As a result, consumers and merchants have not realized the savings they could have, and fees have actually increased for debit card purchases less than $15.

In too many instances, swipe fees eat up a merchants’ profit.

The Food Marketing Institute, National Association of Convenience Stores, National Restaurant Association and National Retail Federation filed the suit challenging the Federal Reserve’s rules. All of them are members of the Merchants Payments Coalition, a group of retailers and merchants who are concerned about the rising costs of swipe fees on both debit and credit cards. The MPC continues to push for credit card reform, in addition to correcting the implementation of the Durbin Amendment, which went into effect a year ago on October 1, 2011.

Visa and MasterCard together control 80% of the credit card market allowing them to dictate the amount of swipe fees that their member banks charge for each purchase. This kind of price-fixing is not allowed in other parts of the economy. The swipe fee rate varies card by card so a merchant never knows what the fee will be for any specific transaction. Visa has over 70 swipe fee categories while MasterCard has over 240. The fees also are 7 to 8 time higher than the standard European rate.

Follow us on Twitter at @reformswipefees and like us on Facebook.