The Senate’s rejection of the amendment offered by Senators Jon Tester (D-Mont.) and Bob Corker (R-Tenn.) is a major victory for the convenience and fuel retailing industry, NACS Chairman Jeff Miller said in statement.
The Tester-Corker amendment needed 60 votes for passage in the Senate; however it failed to clear this hurdle by a vote of 54 to 45 on June 8. Defeat of the amendment, which sought to delay debit card swipe fee reform and was supported by the country’s largest banks, removes the last hurdle to important debit swipe fee reforms mandated by Congress in 2010.
“This vote is an enormous win for consumers, since it fundamentally changes the rules in how banks collect $1 billion every month in debit swipe fees from consumers,” said Miller, who is president of Norfolk, Virginia-based Miller Oil Co. “The vote means that consumers will now have a choice in how they pay for goods, and retailers will be able to provide incentives to reward customers for selecting lower-cost options, instead of funneling these costs directly to the banks. Today’s vote clearly shows the importance of making your voice heard,” continued Miller.
“This was a 10-year battle to kill the stranglehold that the banking industry has on how our country’s payment system operates and we were fighting against an opponent that has poured hundreds of millions of dollars into maintaining the status quo. Our convenience and fuel retailing industry played a leading role in this historic victory with petition campaigns from a record-setting 5.4 million consumers demanding change, the tens of thousands of letters and calls from retailers to Congress and the hundreds of personal visits that our members made to congressional offices both on Capitol Hill and in hometown offices.”
Defeat of the amendment clears the path for the Federal Reserve’s final rules — due for release any day — on debit card reform to become law on July 21. The reforms limit price-fixing by the nation’s largest banks; they will now be required either to compete on their debit card swipe fees or charge an amount that is “reasonable and proportional” to their costs.
“The Federal Reserve’s proposed rules would still allow banks to make a reasonable, if not sizable, profit on debit transactions. A survey of banks by the Fed found that debit swipe costs averaged around 4 cents per transaction, and the final rules are expected to set rates at least 300 percent above that rate — a profit margin that is unimaginable in our industry, which saw overall pretax profits of 1.1 percent in 2010.”
While the vote was the last hurdle for implementation of debit swipe fee reform, plenty of work remains, said Miller. “We will work with the Federal Reserve and Congress to ensure that this remains a win for consumers and we will continue to push for other reforms in our payments system.”
Senator Dick Durbin (D-Ill.) called on the Federal Reserve to act quickly to issue the final rules needed in order for the law to take effect and small business owners to begin to get relief.
A Durbin-authored amendment to help reduce the soaring cost of interchange or “swipe” fees was signed into law last year as part of the Wall Street Reform Act. Interchange fees are fixed by card networks on behalf of banks, and allow banks to receive a non-negotiable cut out of the total amount of every sale a business makes by debit card. The fees, which have skyrocketed in recent years and far exceed the actual cost of conducting a transaction, often eat up half – if not more – of a small merchant’s annual profits, a statement issued by Durbin’s office said.
“Higher interchange fees mean higher costs for retailers and consumers,” Durbin said in the statement. “Fee payments are going up every year, and small business owners have no ability to negotiate any change in their amounts. We must implement reform that will make sure that the fees charged to merchants are reasonable and proportional to the actual cost of processing a transaction. If we don’t, consumers and business owners will keep getting shortchanged,” Durbin said.
Durbin’s amendment directed the Federal Reserve to ensure that the debit card interchange fees that Visa and MasterCard fix on behalf of the largest one percent of U.S. banks are “reasonable and proportional” to the costs incurred in processing the transaction. The legislation also stripped anti-competitive provisions from Visa and MasterCard’s contracts to allow merchants to offer discounts for using cash, checks and debit cards as opposed to credit cards.
The Federal Reserve is expected to soon finalize the implementation of regulations. The new regulations have faced mounting opposition from the big banks and credit card companies who are seeking to stop this reform.
In the United States debit interchange fees average 1.14 percent of the transaction amount, whereas in the European Union Visa and MasterCard charge debit interchange fees of 0.2 percent and in Canada debit interchange fees are zero. American consumers, merchants, small businesses, charities, universities and government agencies pay approximately $16 billion per year—over $1.3 billion per month—in debit interchange fees, more than half of which goes to the largest ten banks. To make up for the interchange fees, businesses often either raise their retail prices or cut back on other expenses, like hiring.
“The setting of non-negotiable rates by giant card companies on behalf of the nation’s biggest banks not only represents a failure of the market, it pinches the pocketbook of every American,” Durbin said. “These interchange fees have real life consequences, which is why reform is so important. I’m standing on the side of small business owners and merchants who deserve a debit card system that works for them and their customers, not just for the big banks and card companies,” Durbin said.