Time to reform credit card swipe fees

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Kathy Miller, owner of the Elmore Store in Elmore, Vermont came to Washington, D.C. to testify before the House Financial Services Committee on legislation I introduced. One of Kathy’s primary frustrations was that her customers had no idea how much it cost her when they used a card to pay at her country store. There was little she could do to inform them of those costs or encourage them to use a different form of payment.

On average, swipe fees total roughly two to three percent of any purchase – the same or higher than the profit margins in many retail industries. Handing over these fees to the banks and credit card companies makes it difficult for local retailers to keep their prices down or put money back into their businesses.

And there is no justification for the fees to be this high. According to the Federal Reserve, the cost of processing a non-cash transaction is on average four cents. Yet, the fees paid by American businesses are the highest in the industrialized world. And they keep going up despite improvements in technology that makes non-cash transactions more efficient. 

A year ago we made progress when we successfully implemented rules to crack down on debit card swipe fees. But there’s more work to do.Credit card companies still remain largely unregulated and able to set credit card swipe fees as they see fit. The big banks and credit card companies continue to wield their monopoly power, rigging the system to exploit small businesses and consumers. 

One way they do that is by making things too confusing for most Main Street businesses to understand. Small businesses often don’t know what they are paying or why they are paying it. The bank statement a local retailer receives at the end of the month has so many different rates and fees it may as well be in a different language.  For example, Visa has over 70 swipe fee categories while MasterCard has over 240 different rates.

Credit card fees are still growing and are largely unpredictable. As the United States begins to embrace new technologies, such as mobile payments, it is critical for America’s entrepreneurs that we not perpetuate a broken payments system that harms small businesses and their customers.

We shouldn’t let credit card giants own our future and hurt local businesses and their customers. The beauty of the American system is that we make everyone compete so that the little guy – consumer or small business – gets the benefit of that. That ought to start happening in credit cards too. The credit card industry shouldn’t get a free pass. We need to make them compete in an open, transparent way. If we do, we will all win.

Welch is a member of the House Agriculture Committee and the House Oversight and Government Reform Committee.