Does the ‘Swipe Fee’ Cap Mean the Fed is Complicit in Banks ‘Fleecing’ of Businesses?
- Posted on September 30, 2011 at 8:11am by
Becket Adams
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According to recent news reports, Visa and MasterCard will treat the swipe fee cap set earlier this year by the Federal Reserve as a minimum. The result of this will ultimately cost retailers more on small transactions. (Swipe fees are charges retailers incur every time you use your debit or credit card.)
It was the stated intent of the bipartisan law passed by Congress in 2010 to correct the excesses of the debit market; to rein in out of control swipe fees and save small businesses money.
“This move by Visa and MasterCard clearly hurts businesses and consumers by undermining Congress’ intent that swipe fees be reasonable and proportional,” said Mallory Duncan, chairman of the Merchants Payments Coalition in a recent NACS Online report.
“Attempting to charge the public the maximum ceiling amount, no matter how small the transaction is, unfortunately is all too typical of what we’ve come to expect from the card companies and their banks,” she said
Data released by the Federal Reserve in December showed that, although merchants paid on average 44 cents on every debit transaction, the transaction cost just 4 cents to process.
Just 4 cents.
For a bit of perspective, keep in mind that paper checks have been processed without any interchange fee for almost a century.
In December, the Federal Reserve proposed a cap between 7 and 12 cents for banks with $10 billion in assets, ensuring 200 percent profit for the issuing banks. However, come July and the Federal Reserve released a dramatically different final rule that raised that cap to 21 cents, guaranteeing a 525 percent profit on every transaction.
“The ultimate beneficiary, we hope, is the consumer,” Bernanke said in a Washington Post report.
Bank costs have been low enough to carry these small transactions at a significantly lower swipe fee rate for years, reports NACS Online. According to analysts, the swipe fee hike may increase swipe fees on a $2 purchase from 8 cents to 23 cents.
Merchants did not fight this battle to lower their prices, argued Rep. Barney Frank (D-Mass.).
“I think they were fighting to raise their revenue,” he said in a recent interview. One of the key players in this battle, Barney Frank opposed the debit-fee provision, which was added in the Senate by Sen. Richard Durbin (D., Ill.), and instead supported efforts this year to delay the Fed rule, reports the Wall Street Journal.
“The Federal Reserve is complicit in the fleecing of America’s retailers, small and large, and consumers. Today’s news is proof-positive that the Federal Reserve’s decision to kowtow to the big banks and credit card networks and abandon the facts that supported its earlier proposal have given license to Visa and MasterCard swipe more from small merchants struggling to survive,” said Katherine Lugar, executive vice president for public affairs at the Retail Industry Leaders Association.
Merchants paid $62.75 billion in card-related fees last year, up from $48.56 billion in 2005, according to the Nilson report, a Carpinteria, Calif.-based newsletter that tracks the payments industry. Those fees have risen dramatically in recent years due to greater use of credit and debit cards. At the same time, Visa Inc. and MasterCard Inc., which set the fees charged by card-issuing banks, have significantly raised their rates as well.
Chicago restaurant owner Ina Pinkney told the Wall Street Journal in July that the new rate likely will not make much of a difference in her expenses because the company that processes her transactions just imposed some new fees on her account
“I’m still getting screwed,” said Ms. Pinkney, who pays more than $30,000 a year to accept credit cards and debit cards in a recent Journal report.
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charjan
Posted on October 6, 2011 at 9:30amRefuse to swipe. Use cash. However, the Fed rules just resulted in higher purchase fees to the customer regardless of how purchase, swipe or cash. Those that swipe get a double whammy charge. The compassion of the Fed’s causes heartburn to the consumer every time. Keeps the Fed’s out of controlling business, and it will manage itself through competition and consumer common sense.
Report Post »stephenmarkovich
Posted on October 6, 2011 at 5:14amFree market….don’t like your institutions practices?…take your business elsewhere. Highly effective and soooo simple.
Report Post »Censored_by_the_Illuminati
Posted on October 1, 2011 at 10:03amIt’s all part of this administrations (and those previous) 2 faced game. Rob from the citizens and give it to the banks then rob from the corporations that proved and give it to the banks. It’s all about the mega banks getting all the money in the end. Big business is not the culprit, it’s big banking. It’s all about control.
Report Post »Rowgue
Posted on September 30, 2011 at 1:19pmThey can do that if they like, but they’ll be breaking the law. The law clearly states that they cannot charge more than the capped fee outlined in the legislation.
Report Post »vtech61
Posted on September 30, 2011 at 12:45pmMy online biz gets charged 2.9 % on the total purchase price
of items we manufacture and sell plus .30 per transaction.
I used to offer PayPal, Google Checkout and my merchant account, but after my
merchant account with Cardservices Intl., starting nickel and dimming us smaller merchants
(and charging a $150.00 a year PCI compliance fee to boot, starting a couple of years ago)…
I dropped them like a bad habit.
What I’m saying here is that small businesses take in the shorts all the time.
Report Post »It’s sad really.
In the end it’s the consumer who gets hosed
as we small merchants have to pass on these ridiculous fees to YOU.
truth-seeker2020
Posted on September 30, 2011 at 9:06pmHave you found any other company who has reasonable rates? People want to know. Thanks.
Report Post »GrumpyCat
Posted on September 30, 2011 at 11:44amSame sort of pricing occurs with minimum wage. Workers are not pulled up to the minimum wage, but pulled down to the minimum.
New workers entering the job market “know” they are only worth the minimum set by the government so an abundant supply of minimum wage workers are available that businesses don’t have to compete with superior wages.
I claim wages would rise if the minimum wage was rescinded or lowered to less than half its current rate. Yes, a few would make less than the current minimum, but some are not worth the current minimum.
Report Post »svedka
Posted on September 30, 2011 at 11:35amBut, if you post a sign incentivizing cash from clients the processors reserve the right to refuse to allow you to accept the cards at all, that in very small print buried in to a very long contract of balderdash….and now the merchant pays a fee to the government to take a quiz on line about how we keep the numbers safe once we have used them. And recently it was brought to my attention that the receipts the cc machines are kicking out are coated with BPA powder and ironically enough the new BPA free paper is much more costly. Last year cc processing fees and bank fees were the second largest item on our deduction list. They actually suggest that you not keep the receipt in your purse and wash your hands after you handle the paper.
Report Post »MSfromtheOC
Posted on September 30, 2011 at 12:14pmYou’re right. I remember (but I’m not sure of my memory) that there is a federal law on the books that prohibits merchants from charging a add on fee for credit card or debit card transactions. That’s why the merchants had to post it as a “cash discount.” If the government stopped trying to micromanage our lives, we would find a lot fewer crazy situations and a lot more sense. Merchants would discover the least expensive form of payment (cards, checks, cash, whatever) and price their products accordingly. Or they might find that all the methods cost about the same and drop all this nonsense.
Report Post »FlutterBy8
Posted on September 30, 2011 at 11:26amIn my experience, the merchant is Not charged a fee for “debit” transactions. So, when the merchant ask you if you want the charge to be a debit or credit and you answer “debit” the merchant is not going to be charged a fee for processing your transaction.
Report Post »dontbotherme
Posted on September 30, 2011 at 7:46pmYes, we are charged a fee for debit cards.
Report Post »MSfromtheOC
Posted on September 30, 2011 at 11:05amBecket: Sorry, but a little accuracy goes a long way…
1. Banks have always charged merchants for processing checks and cash. The difference is that it’s not called “interchange.” Take a look at any business checking account analysis and you’ll see charges for each and every check processed and bill and coin received. Moreover, many merchants pay companies to insure that if a check they accept is returned (NSF, stop pay, etc.) the merchant will be made whole. And, don’t forget that every merchant in the world has suffered shortages in the cash till at the end of the day. All these are costs that are reflected in the price of the goods and services we all purchase.
2. The issue with debit card interchange is that it has always been priced based on credit card interchange. Credit card interchange is a form of “factoring.” The merchant gets the funds today, and the financial institution gets the funds in 45 days. That cost was passed on to the merchant, as it is in standard factoring. BUT this is not the case with debit cards, where the funds are immediately taken from the consumer’s account.
Final comment… Would anyone with a realistic grasp of the impact of price controls ever believe that a mandated ceiling would become anything other than the price floor. Econ 101. That’s one of the reasons why we need to get the government off our backs.
So Ms. Plinkney, I’m glad you found the line item on your merchant account. What’s the compatible cost for cash o
Report Post »Happy Killmore
Posted on September 30, 2011 at 11:27amAbsolutely right!!! When I lived in Hawaii, they instituted a price ceiling on gasoline. All the locals were so happy and thought the price of gas would go down. I kept telling them before it passed they should not vote for it because all the gas stations would immediately raise the price to the cap. They called me crazy. Sure enough, as soon as it went into effect gas prices went up to exactly what the cap was. Any government mandated “price cap” is merely the government mandated price. It kills any kind of benefit of free market competition.
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