Keep credit card swipe fees competitive
Six years ago, Congress gave every consumer in the country, including Coloradans, a break.
Until then, banks had been piling gigantic processing fees onto merchants every time a customer swiped the banks’ debit card to pay for something, from lunch to tires to groceries and haircuts.
Just two huge credit-card companies, Visa and MasterCard, dominate this market and have the power to price-fix these “swipe fees” at outrageous levels.
Over the years, this business became a distorted version of the competitive free-market system that made our economy the largest in the world.
Instead, the swipe-fee market reverted back to the days of the great railroad and steel trusts and the robber barons of more than a hundred years ago.
Six years ago Congress stepped in with legislation to restore competition and fairness to the market and help consumers and small-business people.
For instance, Visa and MasterCard had paid their member banks to block other companies from processing debit transactions for merchants.
Under reform — the Durbin Amendment to the Dodd-Frank financial reform law — there must now be two unaffiliated competitors available to handle every transaction, bringing some competition to the market.
Reform also limited what banks can charge merchants but lets the banks charge whatever they want as long as they compete and avoid the price-fixed fees.
From its beginning the bankers complained loudly about reform, which affects only the 100 biggest banks in the country, not your small local credit union or savings bank.
They continued to grumble, even though, according to the figures they report to the Federal Reserve, the big banks are still getting a 500-percent markup on the average transaction fee. Those kinds of margins would be the envy of most American companies.
Retailers, with their thin profit margins in a highly competitive industry, must raise prices to cover at least part of this inflated cost or risk going under. They must also pass along savings when they occur or risk losing customers. And that’s just what happened: An economist who studied the first full year of debit reform — 2012 — concluded consumers saved $6 billion and the positive changes supported more than 37,000 jobs.
In Colorado, reform meant $105 million in consumer savings and almost 700 jobs in the first year alone. The benefits have accrued since then.
Recently, though, the House Financial Services Committee voted narrowly to repeal reform.
Returning to the bad old days would hurt not just consumers. It would heap a huge and unfair burden on small retailers: the gas station on your way to work, the diner where you get lunch, the market where you buy groceries.
Swipe fees — on debit and credit cards — are now many retailers’ second-highest operating cost, after labor. Americans pay the highest swipe fees in the industrialized world.
And that burden in turn slows the entire economy as consumers spend less and merchants delay hiring and expanding.
For Colorado, that is especially bad news. The Colorado Legislative Council recently forecast that the state’s economy would slow this year and next before rebounding in 2018.
“The risks of recession,” said Natalie Mullis, the council’s chief economist, “are rising.”
So there are the choices: Return to the old days of a fixed, uncompetitive market, or continue to enjoy the growth, prosperity and lower prices reform has brought.
In fact, it’s time to clean up the even larger market for credit cards, too, and bring some muchneeded competition to this business. The banks have had things their own way for too long. It’s time for consumers and small businesses to get a fair shake.