In a news story today, USA Today exposed some of the myths banks propagate about hidden, exorbitant “swipe” fees the banks charge retailers when customers buy with credit or debit cards, the Merchants Payments Coalition reported.
The article also makes a strong case for reforming the way Visa and MasterCard and their bank members fix the fees that consumers pay when they swipe their cards.
American merchants pay the highest swipe fees in the industrialized world, which pushes up prices at their stores. Because MasterCard and Visa fix fees for their banks, which refuse to compete on price, the fees have become retailers’ second-highest operating cost, after labor, and a real obstacle for small merchants in particular.
USA Today found that:
Consumers are saving from debit reform. Public reports for America’s largest retailers show that operating margins fell in the fourth quarter of 2011, when the Durbin Amendment to the Dodd-Frank financial reform law reduced debit card fees. That means those retailers were passing along any savings they might have, and then some. And some companies are giving discounts specifically for using debit cards, including, among others, Ikea, Nice N Easy Grocery Shoppes and some Exxon and Arco stations.
Second, free checking has not disappeared under the Durbin Amendment, as the banks claimed it would. In fact, more banks offered free checking after reform than before and overall prices on bank accounts dropped.
In the second half of 2011, 39% of banks offered checking accounts with no monthly maintenance fee, up from 35% for the first part of the year, according to a survey of the 50 largest banks and 50 midsize and small banks by MoneyRates.com.
Even at the big banks that charged a fee for checking accounts, the average cost fell to $11.28 from $11.75, the survey found. The average minimum balance required to avoid a monthly fee also fell, to $391.41 from $412.53 in mid-2011.
Third, small banks have benefitted from the reforms. The rates those banks charge on debit cards has not been driven down at all by Durbin, which does not apply to them.
“So far, it has turned out to be not nearly as bad as we were concerned it might have been,” said Bill Hampel, chief economist for the Credit Union National Association, the trade association for credit unions.
Debit cards are still offering rewards, though some programs have changed strategies. “Instead of cash back or miles, some banks have switched to rewards programs that give debit-card holders points that can be used to get discounts on specific purchases,” said Alex Matjanec, co-founder of MyBankTracker.com.
For example, a consumer who buys a lot of coffee might receive points that can be used to get a discount at Starbucks.
Finally, savings for consumers would have been bigger, but the Federal Reserve’s rules let banks charge more for small purchases.
Retailers who previously paid as little as four cents on a small debit card transaction found themselves hit with a 21-cent fee.
“A customer buying a can of soda on a debit card is costing me more today than it did before the legislation,” said Ari Haseotes, president of Cumberland Farms, which operates almost 600 gas and convenience stores in 11 states across the Northeast and in Florida.
Meanwhile Visa and MasterCard announced big jumps in profit for their latest quarter, and Visa said it was under a federal antitrust investigation into the way it handles debit card fees.
“Were the Fed to reform its rules,” said Doug Kantor, counsel to the Merchants Payments Coaliton, a group of retailers that fights exorbitant swipe fees, “consumers would be saving even more. And that’s not even counting credit cards; reforming that broken market should be the next step toward fairness.”
The Merchants Payments Coalition (MPC) – UnfairCreditCardFees.com – is a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees.