Will the big banks get Congress to kill reforms that save consumers billions of dollars?
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If we’re in the midst of a new populist era, why are some members of Congress trying to help big banks squash reforms that saved the little guy – consumers and small businesses – billions of dollars?

For decades, the banks have been gouging retailers and every single one of their customers – including you – for processing the transaction when you swipe a debit or credit card to pay for something.

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These bloated “swipe fees” have swollen into merchants’ second-largest operating cost, second only to labor.

There’s no question swipe fees raise prices at the grocery or the local diner or the hardware store, even if you don’t use a card.

That’s billions of dollars migrating from your pockets into the banks’ coffers as, in some cases, they charge merchants dollars for a service that costs the banks a few pennies at most.

This abuse hurts the poorest among us most, according to a Harvard Business School study. Visa and MasterCard price-fix these fees for their member banks to charge merchants.

How have they been able to contravene for so long the free-market system that built the world’s largest and most innovative economy because most consumers know nothing about the $80 billion swipe-fee business. And that’s the way the banks like it. But six years ago, Congress decided to save consumers money by making the market competitive, just like other U.S. businesses.

Congress gave banks incentives to compete on their debit fees by limiting how high Visa and MasterCard can price-fix those fees. If banks compete, they can charge as much as the market will bear without regulation.  But price-fixing is limited.

Congress also stopped Visa and MasterCard from blocking their competitor processing networks. Now merchants get a choice of at least two competing networks to handle their debit-card transactions. That means the big networks have to compete on price, too.

Banks, of course, would rather let their prices be fixed than compete.  And now a few members of Congress are listening, even though a report showed reform saved consumers $6 billion in its first full year alone, 2012, and supported more than 37,000 jobs. 

Figures from the federal government also show merchants are putting those billions back into consumers’ hands by lowering prices. In all, consumers have saved $30 billion on these reforms so far. Consumers save because retailing is so competitive that merchants must hold prices down. During the five years that debit reform has been in effect, the producer price index (what retailers pay for the goods they sell) has risen 9.4 percent, according to the Federal Reserve. But the consumer price index (what retailers charge consumers) has risen only 4.3 percent.

That proves retailers have eaten more than half the increase in their cost of goods to keep prices low. Debit reform has been one factor letting them do that. Because retailers are so fiercely competitive, these numbers indicate merchants saved consumers even more than what merchants saved from debit reform.

The simple fact is, the banks don’t like to compete. And the one fact they have never denied – because they can’t – is that the market was uncompetitive and fixed, and it still is for credit cards.

Consider the head of the community banks trade association, Camden R. Fine, who complained recently that reform means “multiple [processing] networks compete for the merchants’ business.” Exactly. That’s the point of competition. Without it, banks gouge merchants as much as a 10,000 percent markup on fees for processing credit-card purchases.

And even after reform of the debit market, big banks still manage to mark up those fees a stunning 500 percent.

Now, in congressional hearings that started Wednesday, the banks are trying to muscle this new Congress into repealing reform, obliterating competition and transferring all those billions from your pocket back into their vaults.

Don’t let them do it. 

Congress should not go back to the days of price-fixing and consumers’ losing money on every purchase. Thirty billion dollars saved has done U.S. consumers a lot of good in the past five years.

Mr. Hershman is vice president of government relations for the National Association of College Stores.


The views expressed by this author are their own and are not the views of The Hill.