Retail Groups Oppose Bill to Undo Swipe Fee Reform

WASHINGTON, D.C. -- Senator Jon Tester (D-Mont.) today introduced a bill to delay implementation of the so-called Durbin amendment, a measure passed into law last year that would limit the price-fixing engaged in by the nation's largest banks so they would be required to compete on their debit card swipe fees or charge an amount that is "reasonable and proportional" to their costs.

The legislation, S. 575, introduced on March 15 seeks to delay for two years critical reforms aimed at providing relief to America's small business owners. NACS President and CEO Hank Armour called the bill a "slap in the face to small business owners and consumers across the country."

NACS Vice Chairman of Technology Pat Lewis, who operates 13 Oasis Stop N Go convenience stores in Idaho, called the bill another Wall Street bailout. "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 9 months were paid more than $130 billion," said NACS Senior Vice President of Government Relations Lyle Beckwith in a press release from NACS.

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 profit on debit transactions. Rather than eliminating swipe fees, the Federal Reserve sought to define a rate that was fair and equitable, with per-transaction rates of 7 or 12 cents both proposed. A survey of banks 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 percent based on the proposed rulemaking.

Ostensibly, Senator Tester said he is concerned about small banks being hurt by the rules. However, the Durbin amendment approved by Congress explicitly states that banks with under $10 billion in assets will be exempted from the new 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, according to NACS.

Honor-all-cards rules in debit and credit card contracts prohibits retailers 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."

NACS also pointed to a study released last month by Robert Shapiro, former undersecretary of commerce for economic development that said swipe fee reform would add jobs and transfer funds directly from banks to consumers. 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, according to the report.

"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.

Other retail trade groups echoed NACS's sentiments. The Retail Industry Leaders Association (RILA) called the bill just another bailout for the banks. "Despite the American people's repeated disapproval of bank bailouts, the Tester bill is just that, this time at the expense of retailers and their consumers," said Katherine Lugar, executive vice president for public affairs.

"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. "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."

Grocers in Sen. Tester's 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.

Mike's Thriftway is a member of FMI.