Federal Ruling ’Positive Step’ in Swipe Fee Reform

The National Association of Convenience Stores (NACS) called the Dec. 16 release of the Federal Reserve’s proposed rulemaking related to debit card swipe fees a “positive step” and said it will continue to push for the reforms demanded by Congress and consumers alike.

While no interchange fees should be allowed on debit transactions, the Fed’s proposal demonstrates real progress toward that reasonable goal—and parity between checks and debit cards.

“The proposed rules are a positive step in addressing the anti-competitive behavior of the banks and credit card companies and an acknowledgement of the voice of American small businesses and consumers,” said NACS President and CEO Hank Armour. “This is what 5.4 million of our customers had in mind when they signed petitions demanding reform.”

This past June, NACS delivered to Congress two million consumer signatures that were collected at convenience stores across the country, making it one of the largest collections of consumer signatures ever for a public-policy issue. Combined with the 1.7 million signatures that 7-Eleven franchisees collected and delivered to Congress in 2009, and the 1.7 million signatures Speedway SuperAmerica delivered in 2010, 5.4 million consumers directly asked Congress to reform swipe fees, and Congress voted to do so in an historic, bipartisan vote this summer.

When Congress approved the financial services reform bill, it directed the Federal Reserve to issue rules to ensure that debit 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 industrialized world. A number of independent research reports have confirmed what retailers have long argued: Swipe fees are considerably more than the actual cost of processing transactions and provide no commensurate benefits to retailers or consumers.

In 2008 alone, Americans paid more than $48 billion in swipe fees. These fees are non-negotiable and set in secret by the credit card companies and their member banks, and increase the cost of goods and services purchased by consumers.

Retail experts have long argued that costs to process debit transactions, which are essentially electronic checks, should be in line with the fees charged to process paper checks.

“Today’s proposed rulemaking by the Federal Reserve begins to create a system in which debit swipe fees are reasonable and proportional to the processing costs incurred,” said Armour.

Swipe fees have been the convenience and petroleum retailing industry’s top pain point and second largest expense item-behind only labor costs-for a number of years. As a percentage of overall sales, card fees increased in 2009, from 1.35-1.45% of total industry sales dollars, factoring in all forms of payment, including cash and check. Total credit card fees ($7.4 billion) also surpassed overall convenience store industry pretax profits ($4.8 billion) for the fourth straight year in 2009.

Convenience stores, which sell approximately 80% of the motor fuels purchased in the country, have long offered cash discounts for fuels purchases, clearly demonstrating that taking costs out of the system will benefit consumers. “Reducing swipe fees is good for consumers, good for small businesses and a good way to invigorate our country’s economic engine,” said Armour.

Following the Dec. 16 announcement of the proposed rulemaking, there now will be a 60-day comment period on these proposed rules. NACS and other organizations that are part of the Merchants Payments Coalition will carefully study the rules the Federal Reserve has proposed today and offer its suggestions for strengthening the final rules, which the Federal Reserve expects to publish in April 2011 and go into effect June 21.

“This fight is not over,” said Armour. “Millions of consumers, thousands of small businesses and an historic vote by Congress have all said that ‘enough is enough.’ We owe it to them to continue our fight to make sure that their voices are heard as final rules are written.”



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