[via NACS Press Release] ALEXANDRIA, VA – Reforming credit and debit card swipe fees took a huge step forward today as the Senate voted 64 to 33 to include Senate Majority Whip Richard Durbin’s (D-IL) amendment to address swipe fee reform as part of the larger financial regulatory reform bill.
“This historic vote would not have been possible without the tremendous support of our members who called on their senators and asked them to support this common-sense, consumer-friendly amendment,” said NACS CEO and President Hank Armour. “These calls, along with the millions of consumer signatures retailers collected and delivered to Congress urging credit and debit card fee reform, clearly shows that members of Congress are listening to their constituents.”
Sen. Durbin’s amendment (#3989) seeks to reform swipe fees on debit cards and address the rules and regulations associated with accepting debit and credit cards.
Credit and debit card swipe fees — called “interchange fees” by the big banks that set these rates — are a percentage of each transaction that Visa and MasterCard and their member banks collect from retailers every time a credit or debit card is used.
The Durbin amendment would direct 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 percent to 2 percent of the transaction amount — among the highest rates in the industrialized world. A number of independent research reports have confirmed what retailer have long argued: Swipe fees are considerably more than the actual cost of processing transactions and provide no commensurate benefits to retailers or consumers.
The Durbin amendment also prevents card networks like Visa and MasterCard from penalizing sellers for offering discounts to customers. The amendment would allow sellers to offer discounts for customers to use competing card networks or other payment methods. The amendment would allow sellers to choose to decline credit cards for small dollar purchases because swipe fees often exceed profits on such sales.
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.
The vote came despite intense lobbying pressure from the financial community, which sought to discredit the amendment by inaccurately portraying it as damaging to small, community banks. The legislation, however, provides exemptions for small banks and credit unions. Banks with less than $10 billion in assets would not be affected by the legislation. Included in this exemption would be 99 percent of banks (all but 86), 99 percent of credit unions (all but 3) and 97 percent of thrifts (all but 11).
NACS Vice Chairman Dave Carpenter, who operates both convenience stores and a community bank, said in April 28 testimony before the U.S. House Judiciary Committee that swipe fees “are of little value to my community bank.”
“The Senate clearly saw that this is a big banks versus small business issue,” said Armour. “More than 80 percent of all cards are issued by the 10 largest banks alone, so the vast majority of transactions will be covered by this amendment.”
The vote on this amendment is a critical step in the process, but it is not the final step. The Senate must pass the broad financial services regulatory reform legislation, a vote that could come next week. If the Senate approves the bill, it must be reconciled with the reform legislation previously passed by the House. Because the House legislation did not include any reform of swipe fees, the Senate and House will have to reach agreement on this issue specifically. Once the two chambers have combined the two bills, both the House and Senate will again vote on the final package before sending it to the president for his signature.
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 to 1.45 percent 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.
Last month, NACS delivered to Congress 2 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 last September, 3.7 million consumers have weighed in on this issue over the past year.
“This fight is not over,” said Armour. “We must keep the pressure on to continue to fight for swipe fee reform and get this legislation passed into law. NACS will continue to develop communications platforms that allow members to tell their elected leaders that it is time to eliminate the big banks’ stranglehold on our businesses and give it to the rightful owners: the small businesses that serve Americans every day.”