Keep credit card swipe fees com­pet­i­tive

The Denver Post - - OPINION - By Christo­pher Howes and Grier W. Bailey Christo­pher Howes is pres­i­dent of the Colorado Re­tail Coun­cil. Grier W. Bailey is ex­ec­u­tive di­rec­tor of the Colorado Wy­oming Petroleum Mar­keters As­so­ci­a­tion.

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.

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