Swipe Fee Reforms a Good Start: Industry

Although debit swipe fee reform is made much less potent by what it terms “a deeply flawed” Federal Reserve Board implementation rule, such reform, which takes effect Oct. 1, still represents a big step toward fixing a broken market and ridding merchants and consumers alike of unfair restrictions and excessive fees, according to the Arlington, Va.-based Retail Industry Leaders Association (RILA).

The Food Marketing Institute (FMI) concurred, noting that “the Federal Reserve Board cut the anticipated benefit accomplished by the Durbin Amendment in half,” while praising the efforts of legislators to bring about reform.
Signed into law in July 2010, swipe fee reform aimed to control burgeoning fees imposed on merchants and customers by Visa, MasterCard and the big banks. The fees currently cost merchants almost $20 billion annually and result in higher prices for shoppers. Reform legislation sponsored by Sen. Dick Durbin (D-Ill.) mandated that fees be “reasonable and proportionate” to the actual cost of the transaction.

“As swipe fee reform takes effect, it is important that we recognize the importance of this major step towards fairness and applaud Sen. Durbin, Rep. Welch, the bipartisan members of Congress who voted for reform, and the thousands of merchants, small and large, that fought to fix this broken system,” noted RILA President Sandy Kennedy. “For many merchants and consumers, long-awaited relief is finally here.”

“Sen. Dick Durbin is a tireless, passionate and committed champion for merchants and consumers,” said Leslie G. Sarasin, president and CEO of Arlington-based FMI. “The odds of beating the big banks were clearly stacked against us, but Sen. Durbin left no stone unturned to accomplish these reforms -- from his colleagues on the Senate floor to Wall Street analysts to every media outlet and consumer in between.”

“While the Federal Reserve diminished the full benefit of swipe fee reform in their final regulations, the reforms do represent an important reduction in fees for independent grocers and ultimately for consumers,” observed Peter J. Larkin, president and CEO of the Arlington-based National Grocers Association. “Additionally, important reforms were enacted that provide Main Street businesses and consumers with increased transparency, along with new choices and competition in the debit marketplace.”

However, many issues remain, among them the Federal Reserve rule, which will actually cause some retailers’ fees to increase, RILA said.

In July, the Fed capped these fees at 24 cents, almost double what it had proposed seven months earlier, as well as six times higher than what its own data showed as the actual cost to process a transaction. Visa and MasterCard recently began alerting card-issuing banks that they would also treat the board’s cap as a minimum, which RILA says will certainly lead to fee rises for merchants such as convenience stores and coffee shops that process small dollar transactions.

“Unfortunately, the Federal Reserve ignored its own data when it finalized implementation rules, weakening the congressionally approved reforms and giving license to Visa and MasterCard to raise -- not lower -- the fees some merchants face,” explained Kennedy. “RILA will continue to fight to fix the broken swipe fee system and bring transparency, competition and relief to all retailers and their customers.”

FMI noted that, despite the Fed’s rule, the legislation would:

• Provide transparency so supermarkets can inform consumers about costs and hidden fees
• Offer a level of certainty to small businesses that there’s oversight of debit card fee increases
• Enhance merchant choice and create a more competitive marketplace for debit card payments, which boosts a retailer’s negotiating power with its payment processors, and could help lower overall payments costs beyond just debit card swipe fees
• Enable merchants to provide an immediate consumer benefit by protecting discounts for debit and cash