Six years ago, Congress limited the degree to which the nation’s giant credit card companies and largest banks could price fix the fees banks charge merchants (and, ultimately, consumers) for processing debit card purchases. Now it’s clear that reform has been a success – as you would expect when price-fixing had been the norm. 

Unfortunately, House Financial Services Committee member Randy NeugebauerRandy NeugebauerLobbying World The deep state is recklessly supporting bad energy policies Warren’s regulatory beast is under fire – and rightfully so MORE wants to leave a toxic present for consumers behind as he prepares to retire from Congress: He has introduced legislation that would toss out that reform and go back to a world of unfettered price fixing. That would kill free market competition and hurt consumers.

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On top of this, Neugebauer's bill would also make it easier for Visa (which has the largest debit card processing network) and banks to block competing payment networks, further raising prices. Competition has brought faster processing and enhanced security in addition to competitive pricing.

Also trying to weaken the freer market is committee Chairman Jeb Hensarling, who has said he will make the same misguided proposal in a forthcoming bill of his own.

It’s important to remember that despite the smokescreen the big banks put up, the Durbin Amendment, as debit reform is known, is an incontrovertible success and should be protected.

Every merchant accepting card payments is charged a “swipe fee” by the bank that issued the card every time customers swipe their cards to purchase something.

Visa and MasterCard, the two biggest card companies, dominate the U.S. payments market, and in the past they price fixed exorbitant debit swipe fees. Banks all agreed to use those overblown fees instead of competing for retailers’ business with reasonable rates more proportionate to their actual costs.

Durbin set a limit for large banks that continue to operate under price fixing, capping the fee at just under 25 cents, or about half the level seen in the past. Banks that choose to set the fees individually rather than through price fixing are free to set the fee as high as they like, but no major bank so far has come forth to put competition ahead of collusion.

The economic impact of unfairly high swipe fees goes beyond the merchant. It makes goods and services more expensive for everyone, whether they use a debit or credit card, or not, and holds back job and business growth.

According to a study by economist Robert Shapiro, consumers saved almost $6 billion in just the first year after debit reform took effect. 

Merchants have been struggling with rising operating costs and higher wholesale prices, but retailing is so competitive that they used the savings from the lower cost of processing debit transactions to protect consumers from price hikes.

Reform also evened out the playing field and presented new opportunities for the smaller banks and credit unions exempted from the law. They can now compete with larger institutions for customers and have increased perks like more free checking.

According to the American Bankers’ Association’s own numbers, 53 percent of consumers had free checking when swipe fee reform became law and 61 percent have free checking now.

This year, the Philadelphia branch of the Federal Reserve reported that not only have small banks’ swipe fees risen after the reforms, but the amount of debit transactions with cards issued by smaller institutions has increased faster than those of the giant banks. In other words, small banks have been gaining customers and prospering under the new rules.

The reform’s goal was to introduce fairness and competition into a non-transparent, unfair market dominated by the duopoly of Visa and MasterCard. Congress did it to protect consumers.

Debit reform was a step in the right direction. We need it to keep debit swipe fees from being fixed and further inflating prices. And merchants also want to ensure that as new payment technologies emerge, such as paying with your cell phone, the unfair swipe fee system isn’t perpetuated in these new systems.

Reform has made this rigged market fairer and freer and more like the rest of the American free market system.

The benefits have meant lower prices for consumers coupled with still-generous profits for the banks.

We need to keep this progress, not toss it away.


Duncan is senior vice president and general counsel of the National Retail Federation and chairman of the Merchants Payments Coalition.