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Banks Seek Bailout on Swipe Fees

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It has been nearly nine months since swipe fee reform legislation was enacted. The Federal Reserve has proposed regulations that would cut debit card swipe fees 70 percent, final rules are due out this month and reform is scheduled to take effect in July.

By now, retailers had expected to be preparing to pass the savings along to consumers in ways ranging from discounted prices to free delivery to enhanced customer service. Instead, merchants have spent months fighting off a vicious lobbying campaign waged by the banking and card industry, one filled with misinformation and claims that make no sense.

Trying to garner sympathy, banking associations claimed mid-sized and smaller “community” banks would be harmed by reform, so retailers pointed out that the new law specifically exempts financial institutions with less than $10 billion in assets. They then claimed retailers would reject cards from smaller banks because they would still carry the same high fees after big banks’ fees are lowered. We reminded them that Visa and MasterCard’s own “Honor All Cards” rule prevents that.

They also claimed the Fed proposal to cap debit swipe at 12 cents per transaction amounts to price fixing, ignoring the fact that the card industry has fixed swipe fees for years. The Fed proposal gives banks the option to set whatever fees the market will bear as long as they do so independently.

The big banks also threatened to take away free checking or to increase any number of consumer banking fees. Given that only about 100 of the nation’s biggest banks are affected by reform, those are hollow threats that would only drive disgruntled customers to the 7,400 remaining banks.

Nevertheless, bankers convinced House Financial Institutions Subcommittee chairwoman Shelley Moore Capito (R-W.Va.) and Sen. Jon Tester (D.-Mont.) to introduce legislation that would delay implementation of swipe fee reform by up to two years and require a government study of the issue.

The banks claim reform was rushed through and not adequately studied. What they are ignoring is that Congress had held half a dozen hearings on swipe fees, passed one previous swipe fee bill out of committee and ordered two studies by the GAO.

Delaying swipe fee reform would cost retailers and consumers more than $1 billion a month, amounting to a $12 to 24 billion bailout under the Capito-Tester legislation. Hasn’t the public already paid for enough bank bailouts?

Banks claim they want to study swipe fee reform, but the truth is they want to kill it. Merchants are ready to pass the savings along to consumers but can’t if Congress lets bankers stand in the way. Retailers need to contact their Congressional representatives today and tell them the time for study is over: It’s time to take bankers’ hands out of consumers’ pockets.

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