Associations Endorse Swipe Fee Amendment

In a letter addressed to all members of the U.S. Senate, 134 trade associations endorsed an amendment (S. Amdt. 3932) to the Restoring American Financial Stability Act of 2010 sponsored by Senate Majority Whip Richard Durbin (D-IL) that will address excessive debit card swipe fees and the anti-competitive practices of credit card companies and the big banks that issue their cards.  

The amendment would free merchants of anti-competitive restrictions imposed by the credit card companies, allowing merchants to offer discounts when customers use less expensive forms of payment. The amendment would also direct the Federal Reserve to issue regulations to ensure that swipe fees imposed on debit card transactions are ‘reasonable and proportional’ to the cost incurred in processing the transaction.

More than 80% of all interchange fees are collected by the 10 largest banks. The amendment offered by Sen. Durbin exempts all banks, credit unions and thrifts with assets less than $1 billion, meaning that 92% of all banks, 98% of all credit unions, and 86% of all thrifts would be exempt, allowing them to continue to receive the same interchange fees they receive today.

“Despite Congress’ efforts to reign in abusive practices, credit card companies continue to take advantage of a major loophole in financial regulation,” noted the letter signed by 57 national associations and 77 state trade associations. It continued, “In fact, they announced interchange rate increases just months after the passage of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (Credit CARD Act), effectively circumventing many of the reforms instituted by Congress.  More recently, Visa Europe announced last month that it was voluntarily dropping debit card interchange fees to 0.2% in Europe, a decrease of 60%, while earlier in the month Visa increased rates on similar transactions in the United States by some 30%.  Quite literally, at a rate of approximately 2.0% on debit card interchange fees, which is 10 times higher in the United States, American businesses are subsidizing European transactions.”

The letter noted that simple, common-sense reforms are needed to correct this market imbalance, and give organizations’ members additional tools to manage costs related to interchange fees.  

First, the amendment would give the Federal Reserve the authority to conduct an open and fair rulemaking – without prescribing an outcome – in order to develop regulations to ensure that interchange fees imposed on debit card transactions be ‘reasonable and proportional’ to the cost incurred in processing the transaction.  Debit transactions are not an extension of credit and are directly drawn from a consumer’s checking account, yet the interchange rate on debit transactions continues to increase.  Small banks, credit unions and thrifts with assets of under $1 billion would be carved-out from these rules, meaning that 92% of all banks, 98% of all credit unions, and 86% of all thrifts would be exempt, allowing them to continue to receive the same interchange fees they receive today.    

The amendment also would prohibit anti-competitive restrictions on discounts and the setting of minimum transaction levels, providing entities with the freedom to choose their preferred method of payment.  Under current rules, any business, charity or government agency that accepts credit or debit cards is prohibited from setting a minimum transaction level, such as $3, even though the entity may actually lose money on the transaction because of slim profit margins. Visa and MasterCard can and do impose fines on small businesses up to $5,000 per day for such offenses, allowing card companies and big banks to profit even if the small business loses money on the transaction.  In addition, the amendment allows businesses to incentivize the use of one card network over another (e.g., a discount may be provided for Discover cards if they carry a lower interchange rate) and allows businesses to offer discounts on certain forms of payment (e.g., a discount may be offered for cash, check, PIN debit, etc., all of which carry lower rates than credit cards).  This amendment would not enable merchants to discriminate against debit cards issued by small banks and credit unions. Visa and MasterCard require merchants to accept all cards within their networks, and this amendment does not change that requirement.

In the last year, small business owners have gathered nearly four million petition signatures from their customers and delivered them to Members of Congress, calling on them to reform these unfair fees.

In addition to the Retail Industry Leaders Association, organizations signing the letter included American Association of Motor Vehicle Administrators, American Dental Association, International Franchise Association, National Grocers Association, National Restaurant Association, Arkansas Hospitality Association, Louisiana Restaurant Association, Retail Council of New York State, and the Wyoming Lodging and Restaurant Association.

SOURCE Retail Industry Leaders Association




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