The legislation, Debit Interchange Fee Study Act of 2011 (S. 575), introduced on March 15, seeks to delay for two years critical reforms aimed at providing relief to America's small-business [image-nocss] owners. The reforms, scheduled to take effect this summer, would limit the price-fixing engaged in by the nation's largest banks so that they would be required either to compete on their debit-card swipe fees or charge an amount that is "reasonable and proportional" to their costs.Tester, Bob Corker (R-Tenn.), Jon Kyl (R-Ariz.), Ben Nelson (D-Neb.), Tom Carper (D-Del.), Pat Roberts (R-Kansas), Chris Coons (D-Del.), Mike Lee (R-Utah) and Pat Toomey (R-Pa.), introduced the legislation "to protect consumers, small businesses and rural and small community banks and credit unions from a proposed rule regarding transaction fees on debit cards," they said.Click hereto read Tester's full press release and to view a copy of the Debit Interchange Fee Study Act."This bill is just another Wall Street bailout," said National Association of Convenience Stores vice chairman of technology Pat Lewis, who operates 13 Oasis Stop N Go convenience stores in Idaho. "The Tester bill is TARP 2, when the last thing we need is another handout to the big banks."
"Congress should be standing by Main Street and not kowtowing to Visa, MasterCard and the big TARP banks that three years ago brought our economy to its knees and whose executives last year in just nine months were paid more than $130 billion," said NACS senior vice president of government relations Lyle Beckwith.
"Interfering with the process even before the final rule is written is nothing more than pandering to the giant banks," added Jennifer Hatcher, senior vice president of government and public affairs for the Food Marketing Institute (FMI). "Delaying swipe fee reform has consequences that will cost merchants and their customers $1 billion each month, and will cost our economy up to 95,000 much-needed jobs each year. Killing jobs isn't what we were promised in November."
On December 16, 2010, the Federal Reserve issued a proposed rule, as directed by Congress in the financial services reform bill, to issue rules to ensure that debit swipe fees are reasonable and proportional to the processing costs incurred. The Federal Reserve also asked for public comments to the rule, which are expected to be finalized on April 21 and implemented by July 21.
The Fed's proposed rules would still allow banks to make a reasonable, if not sizable, profit on debit transactions. The Federal Reserve did not seek to eliminate debit swipe fees, but to define a rate that was fair and equitable, with per-transaction rates of 7 or 12 cents both proposed. A survey of bank's by the Fed found that debit swipe costs averaged around 4 cents per transaction, providing the banks with a profit margin of either 75% or 300% based on the proposed rulemaking.
Tester has said that he is concerned about small banks being hurt by the rules; however, Senator Dick Durbin (D-Ill.) took care of that concern last year as part of the Durbin amendment that was approved by Congress. The legislation states explicitly that banks with under $10 billion in assets will be exempted from the rates. Further, Visa, Star and five other networks have indicated they will support two-tiered pricing so that small banks get to charge more than big banks.
Because of honor-all-cards rules in debit- and credit-card contracts, retailers are prohibited from treating one debit card differently than another debit card.
"Congress voted last summer to fix a clearly broken system, and the Federal Reserve made significant, thoughtful proposals to do so," said Armour. "This bill seeks to preserve the anti-competitive behavior of the banks and credit card companies and is not what 5.4 million of our customers had in mind when they signed their names to petitions demanding reform."
Swipe-fee reform would add jobs and transfer funds directly from banks to consumers, according to NACS, citing "The Costs of Charging It in America: Assessing the Economic Impact of Interchange Fees for Credit Card and Debit Card Transactions," a report released last month by Robert Shapiro, former Under Secretary of Commerce for Economic Development.
Extrapolating the findings for debit swipe fees alone, swipe-fee reform would add 90,000 new jobs and provide $10 billion in relief to consumers, the report said.
"While Congress talks about the importance of revitalizing the economy and growing badly needed jobs, those supporting today's bill are instead siphoning consumers' hard-earned wages to the banking industry," said Armour.
FMI said it is "extremely disappointed" by Tester's bill. Grocers in his home state voiced their concerns about delaying the critical reforms. "We invite our friend Senator Jon Tester to visit Mike's Thriftway in Chester, Montana where he and Sharla have shopped many times. We will open our books to him to show him what it is like to run a grocery store where the bank makes twice as much on an order as we do and the customer pays too much at a time when they don't have any extra to pay," said Mike Novak, who operates the store with his wife, Margaret.
The National Retail Federation (NRF) said the Tester legislation would block retailers from giving discounts to consumers who use debit.
"We are extremely surprised to see a bill introduced that favors Wall Street banks and price-fixing card companies over Main Street merchants and their customers," NRF senior vice president and general counsel Mallory Duncan said. "Merchants are ready to pass lower swipe fees along to consumers in the form of discounts and other benefits as soon as reform goes into effect in July but we can't do that if Congress lets bankers stand in the way."
"The banks and card companies claim they want to study swipe-fee reform, but the truth is they want to kill it," Duncan said. "Congress has already conducted more than half a dozen hearings on this issue, and the GAO and Federal Reserve have done studies of their own. The time for study is over. The time to reduce these fees and take bankers' hands out of consumers' pockets has come."
Meanwhile, some members of the House Financial Services Committee are reportedly planning to introduce a bill calling for a one-year delay and a study.
Merchants are making a wide variety of plans to pass the savings along to customers who use debit cards, ranging from discounted prices to benefits and increased services such as free delivery at an appliance store, but would be unable to do so if reform is delayed. Some of the moves, such as hiring more sales associates to help customers, could result in significant job creation.
(Click here to see previous CSP Daily News coverage of swipe-fee reform.)
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