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?

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.

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. 

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

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.