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