By Dennis Seid/NEMS Daily Journal
It has been portrayed as a battle between big banks and retailers, with consumers like you and me the winners – or losers, depending on which side you took.
“It” is the Federal Reserve’s push to cut the “Debit Card Interchange Fees and Routing,” otherwise known as the debit card swipe fee.
Still don’t know what that is? Think of it this way: Every time you use your debit card at a store, banks charge the retailer a fee.
The Fed wanted to cap that fee at 12 cents a swipe. Fees now average about 44 cents. Banks made about $16 billion in fees in 2009.
So the cap would mean a 73 percent drop in fees for the banks; no wonder they were howling. Wouldn’t you if you saw that amount of revenue sliced?
The U.S. Senate last week, by a 54-45 vote, approved the measure, which will go in effect July 21. There’s still some wrangling to do, but experts don’t think it will change very much.
The actual vote was on a proposal by Sen. Jon Tester, D-Montana, that would have delayed implementation of the rule, but it needed 60 votes.
Mississippi’s senators, Thad Cochran and Roger Wicker, voted with the majority to delay the fee cap.
Proponents of the fee cap argued that cutting the swipe fee for merchants will be a victory for consumers because the savings will be passed on.
In theory, at least, consumers are the great beneficiaries of this debit card swipe fee reduction.
Here’s the National Retail Federation’s take: “It’s a win for the retail and restaurant industries, which have been fighting a push-back by banks since Congress passed the reform bill last year.”
Said NRF President and CEO Matthew Shay, “With the economy still trying to gain momentum and consumers facing skyrocketing costs for necessities like food and fuel, this badly needed reform will help ensure our nation’s economic recovery. It will prevent more than a billion dollars a month from being pocketed by big banks and, in turn, allow retailers to hold down prices for consumers.”
Then there’s the American Bankers Association’s opinion: “The Senate has essentially said that it is fair for one industry to reap what another has sown, and American consumers will now have to pay more for basic banking services, while big-box retailers go off and count their unjustified profits,” ABA President and CEO Frank Keating said. “It is simply unconscionable that the Senate would not act to protect community banks from the rule’s destructive effect.”
Banks say that they’ll have to recoup those fees elsewhere. In other words, new maintenance fees, increased fees and other fees on checking accounts will replace what’s being taken away. Those days of free checking are coming to an end.
Those fees don’t all go toward profits anyway; they’re used for fraud loss and prevention, network costs and fixed costs, including capital investments.
And some experts say that with the cost of running a business skyrocketing, retailers with already-thin margins will likely pocket the savings rather than pass them on.
So, the “victory” claimed by the NRF may just be a Pyrrhic one for consumers. We’ll have to wait and see what happens.
Contact Dennis Seid at (662) 678-1578 or firstname.lastname@example.org.