‘Tis the season . . . for shopping around tired arguments against debit swipe fee reforms.
It’s no surprise that the big banks and credit card companies don’t like reforms which put a stop to their price-fixed, price gouging on debit fees. What’s harder to understand is why they keep crying foul on behalf of consumers when all the evidence shows that consumers are, in fact, benefitting from the reforms.
On Dec. 9, the same day that Tony Sayegh blamed debit reform for ending free checking in his piece “Retailers have themselves to thank for lower Christmas sales,” the Kansas City Federal Reserve published a comprehensive report that says the exact opposite.
According to the KC Fed study, which looked at checking fees before and after debit reforms were put in place, “for an average consumer, free checking became more available after interchange fee regulation.” While some large banks – the ones impacted by debit reforms – eliminated free checking, a greater number of smaller banks maintained or increased their free options for consumers.
And contrary to the "heavy hand of government" arguments peddled by Mr. Sayegh and other banking industry allies, the study finds the free market is alive and well, noting, “free checking has expanded most in cities and regions where banks are engaged in vigorous competition: banks in such markets may offer free checking to attract customers from other banks or to ensure retention of their own established customers.”
Arguments on whether consumers are seeing savings when they shop fall equally flat. A recent economic study by noted economist Robert Schapiro found definitively that lowering swipe fees is good for consumers.
Unlike the two dominant credit card companies who together control 80 percent of the market, retailers and other merchant businesses operate in an extremely competitive environment. They know that if they price their goods or too high, their customers will shop or dine elsewhere. So, anything that helps lower operating expenses, will help them keep prices down, which directly benefits consumers.
The Shapiro study notes that when debit swipe reform went into effect in October 2011, the average debit swipe fee on cards from covered banks dropped from 48 cents to 24 cents per transaction. This saved consumers $5.8 billion in lower costs for good and services and saving merchant businesses $2.6 billion in 2012. The savings in turn supported 37,501 new jobs.
The truth is that charging 24 cents per debit still give the banks and card companies windfall profits when the more than 90 percent of debit transactions cost less than 2 cents to process. Ruling for a group of merchant plaintiffs in litigation challenging the Federal Reserve’s implementation of debit reform, the judge found that Fed, “clearly disregarded Congress's statutory intent by inappropriately inflating all debit card transaction fees by billions of dollars.
It’s time for the banks and credit card companies to stop trying to hide behind consumers when they complain about debit reform. The reason they don’t like it is simple – it limits their price-fixing and helps smaller banks compete.
Kantor is counsel to the Merchants Payments Coalition, a group of retailers and merchants concerned about rising swipe fees.