With the House set to take action in less than two weeks on legislation that would repeal debit card swipe fee reform, retailers small and large say reform has brought huge benefits to their businesses and customers, and has also brought much-needed competition to the payments market.
Speaking with NRF this week, family-owned retailers, mid-sized merchants and well-known national brands all said swipe fee reform needs to be preserved.
The concern comes as the House is preparing for a vote the week of May 22 on the Financial Choice Act, a bill sponsored by Financial Services Committee Chairman Jeb Hensarling, R-Texas, that would repeal swipe fee reform as part of a larger reversal of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Beginning with $8.5 billion in the first year alone, reform has saved retailers more than $40 billion since the regulations took effect in 2011, with about three-quarters of the savings passed along to consumers.
As the repeal vote approaches, retailers have expressed concern about the loss of competition over swipe fees and about losing the savings, which they have used to lower prices or avoid price increases and to create customer perks like free shipping. The savings have also helped retailers open new stores and hire additional workers to better serve consumers.
“Repeal of reform to benefit a few very large banks would come at a dear cost to U.S. merchants, employees and consumers.”Dean Sheaffer
“Swipe fee reform has significantly benefited Boscov’s, other U.S. merchants and, most importantly, our customers and coworkers,” Boscov’s Senior Vice President for Financial Services Dean Sheaffer said. “Repeal of reform to benefit a few very large banks would come at a dear cost to U.S. merchants, employees and consumers.”
Prior to reform, retailers — and ultimately their customers — paid “exorbitant costs” when debit cards were used to pay for purchases even though checks drawn on the same bank accounts would have been free of any fees, Sheaffer said.
Pennsylvania-based Boscov’s, which operates about four dozen department stores in the mid-Atlantic area, has used the savings to maintain competitive pricing, maintain existing jobs and build six new stores creating more than 1,000 new jobs, Sheaffer said.
Wogan S. Badcock III, executive vice president of government and public affairs at Florida-based Badcock Home Furniture and More, said bank claims that retailers have pocketed the savings don’t make sense.
“Unlike banks, retailers are intensely competitive. If I don’t pass along the savings, my competitors down the street will."Wogan S. Badcock III
Badcock Home Furniture
“Unlike banks, retailers are intensely competitive,” Badcock said. “If I don’t pass along the savings, my competitors down the street will. At Badcock, we have used the savings from swipe fee reform to benefit our customers in a number of ways.”
Badcock said the family-run 300-store chain has reduced prices and avoided price increases, improved customer service by adding more workers and added more locations.
The benefits have not been limited to small retailers.
Kirk Simme, senior vice president for credit at Ascena Retail Group — parent of Ann Taylor, Loft, Dressbarn, Maurices, Justice, Catherines, Lou & Grey and Lane Bryant — said swipe fee savings have helped his company meet changing consumer demands.
“The retail industry is under a tremendous state of disruption and retailers are dependent on the utmost flexibility of the payment industry to support the ‘I want it now’ world,” Simme said.
“Debit card savings in recent years have allowed us to make major investments in product innovation, technology expansion in our stores and online, and increased customer value proposition,” he said, citing innovations such as a richer online shopping experience and free shipping. “More costly debit card transactions would transfer value from customers to banks, creating further headwinds that could contribute to weakening consumer growth in an already challenged economic cycle.”
“We believe debit fee reform is working and should be retained because it injected some competition and transparency into the marketplace, helping lower costs for Target and our guests.”Jenna Reck
Support for swipe reform extends to some of the nation’s largest and best-known retailers that have millions of workers and stores across the country.
“Target strongly supports the reforms that limited excessive fees charge on debit transactions and allowed smaller routing networks to compete,” Target Senior External Relations Manager Jenna Reck said. “We believe debit fee reform is working and should be retained because it injected some competition and transparency into the marketplace, helping lower costs for Target and our guests.”
Passed in 2010, Dodd-Frank sought to end the card industry’s non-competitive practice of price-fixing debit card price fees by requiring that the fees be “reasonable” and proportional to banks’ actual costs for processing debit transactions. Under reform, banks that set the fees independently and competitively are free to charge as much as they like. But those that refuse to compete are limited to 22 cents per transaction, down from an average 45 cents before reform. Until recently, virtually all refused, although some have now shown signs of being willing to do so.
“Banks are just beginning to wake up to the possibilities of competing over swipe fees,” NRF Senior Vice President and General Counsel Mallory Duncan said. “Congress should not undercut competition before it can take root. If repeal is reformed, big banks will go back to price fixing and swipe fees will go nowhere but up.”
“Congress should not undercut competition before it can take root. If repeal is reformed, big banks will go back to price fixing and swipe fees will go nowhere but up.”Mallory Duncan
National Retail Federation
Reform has also required that retailers be given at least two routing options for transmitting transactions to the bank, usually including one controlled by Visa or MasterCard and a competing option that can be less expensive, more secure or offers better service.
The complicated, 600-page repeal bill is being forced through Congress with little time for deliberation. Hensarling held a single one-day hearing on April 26 without inviting retailers to testify despite the impact on the industry and consumers. The committee held a three-day voting session before approving the bill last week, but only briefly discussed swipe fees.
NRF has circulated petitions addressing consumer benefits and competition that have generated about 15,000 emails to Congress urging lawmakers to preserve debit card reform. A page on the NRF website also allows retailers’ concerns to be emailed to Congress.
Even with the savings from reform, debit and credit card swipe fees together still cost retailers and their customers more than $50 billion a year, driving up prices paid by consumers by more than $400 a year for the average household. The fees are most retailers’ second-highest expense, topped only by payroll.