Interchange Reform Continues

Now that the Durbin Amendment, part of the Wall Street reform bill, has been signed into law by President Obama, the industry continues to address issues related to interchange reform.

Texas Petroleum Marketers and Convenience Store Association (TPCA) President Chris Newton noted the amendment was “an important first step” in dealing with the negative impacts of the current anticompetitive swipe fee structure.

Newton today is set to testify before the U.S. House of Representatives Investigations and Oversight Subcommittee of the Committee on Small Business to discuss how the Durbin amendment addresses problems with the current competition policy, and corrects mistruths spread by the financial community in his testimony, “The Impact of Interchange Fees on Small Businesses.”

TPCA is one of the more than 100 members of the Merchants Payments Coalition (MPC), a group NACS co-founded to address outrageous credit and debit card fees.

“In my industry, the situation is unbearable. For the last four years running, my industry has paid more in card fees than it has made in total pre-tax profits,” Newton told NACS.

“In the last half of 2007 and first half of 2008, more than 3,000 gas stations and convenience stores went out of business. Many of those businesses would have survived if it wasn’t for these fees which are, on average, the second-highest operating expense our [TPCA] members have. That impact cannot be overstated.”

“This [the Durbin Amendment] should not be controversial,” he added. “In competitive markets, prices are reasonable and proportional to costs because competition brings everyone down to that level. The Durbin Amendment, then, makes up for the fact that there is no downward price competition currently for debit card interchange fees.”

Under the Durbin Amendment, the Federal Reserve must issue rules to ensure that debit card interchange fees, also known as swipe fees, are reasonable and proportional to the processing costs incurred. Visa and MasterCard currently charge debit swipe fees of around 1-2% of the transaction amount – among the highest rates in the world.

The new law includes a provision directing the Federal Reserve to issue rules preventing card networks from requiring that their debit cards can only be used on one debit card network – ensuring that retailers will have the choice of at least two networks upon which to process debit transactions.

Newton has spoken out about how the banking industry is spreading misinformation about who the amendment will benefit and hurt. Banks still claim only large retailers will benefit, while the opposite is true. Visa and MasterCard have set up a system that disadvantages small businesses compared to their larger competitors, NACS reported. What’s more, the financial community still insists small community banks would be hurt by regulation while more than 99% of all financial institutions are exempt from the threshold of $10 billion or more in assets.

“This is now the eighth congressional hearing focusing on the topic of interchange fees. In all of those hearings (including today’s), not a single bank or credit union with assets of more than $10 billion has ever agreed to send a witness to testify,” Newton told NACS. “That is an incredible record of obfuscation and hiding the facts. The biggest banks can try to hide behind their smaller brethren, but I hope that this committee, which focuses on small businesses, will see through that cynical strategy.”

“Once the Federal Reserve shows people the costs and the way that all of us have been ripped off by centrally set fees for decades, people will want further reforms. This can and should happen,” stressed Newton. “The passage of the Durbin Amendment is a harbinger that the days of hidden fees and related card industry tricks to profit from consumers and small businesses are coming to an end. This can and should be the result.”






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