Congress should stand with Main Street, not Wall Street
© Getty Images

The local grocer often functions as the anchor to a community.  From providing quality, stable jobs to supporting causes like the local food bank and the youth softball league, grocers drive the local economy, all while providing safe, affordable, healthy foods to their customers. It is this tradition of community engagement and service to the customer that has kept third and fourth generation grocers thriving in an increasingly competitive industry that operates on a razor thin 1.9 percent profit margin annually. The food retail industry that the Food Marketing Institute and National Grocers Association proudly represent provides 4.8 million U.S. jobs and a large economic footprint.

As the U.S. shopper evolves, so must the grocery industry. Not only do we see growing competition in the traditional brick and mortar grocery store space, but its presence is also being felt in the online market as well. From the single store supermarket operator to the largest, nationwide chains, grocers must continue to innovate and find efficiencies to compete to earn customers’ return business. 

Like others in the retail sector, grocers have seen their costs of doing business rise dramatically over the past several years. One area in which they have been able to recognize some relief and begin to contain costs is in the previously non-competitive debit market. The 2010 debit reforms modestly introduced competition, predictability, and transparency into a market where previously none existed.

Our government has a responsibility to protect free and open competition, and step in to break up monopolies and other inherently anti-competitive schemes when necessary. In 2010, Congress took the first step to address the broken payment card market by including debit reforms in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. In addition to the voluntary limits on levels the largest banks in the country may collect on debit transactions, the amendment requires debit networks to compete for both bank and merchant routing business.

Prior to the 2010 law, Visa and MasterCard paid their largest issuing banks to sign exclusivity agreements ensuring they were the only networks through which merchants could route debit transactions. These contracts prohibited competition and resulted in a market lock on routing for the majority of debit cards. For example, in 2010, Visa routed 79 percent of transactions from its 10 largest issuing banks. This lock artificially increased merchants’ network fees while leaving them without any ability to negotiate costs. Congress recognized the need for competition in the debit network routing marketplace and that the merchant is the paying customer, and essentially banned these closed contracts. As a result, there must be at least two unaffiliated networks enabled on every debit card issued in the United States. Competition in the network routing market has been successful in driving innovation and lowering routing costs for merchants. Debit networks now compete for both bank and merchant routing business on cost, security and reliability. 

Unfortunately, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) recently released his “CHOICE” Act, which would repeal the pro-competitive reforms, returning us to a closed, broken market. 

The mega-banks are spending millions of dollars to convince Congress that competition is bad for their business and should be repealed. Opponents of competition argue that small banks and credit unions have been harmed by these reforms. However, the argument has a giant hole in it. Just last year the Philadelphia Federal Reserve studied how the small banks that were exempt from the regulations, those under $10 billion in assets, were faring under the reforms. The study concluded that “…after the ceiling was imposed, the volume of transactions conducted with cards issued by exempt banks grew faster than it did for large banks.” The report further found that interchange revenue for exempt banks continued to rise for small banks. The study concluded that “…the evidence does not support the claim that competitive forces have effectively imposed the interchange fee ceiling on small banks…”  The facts are clear, not only did the exemption work, but 98 percent of banks and credit unions that were not covered by the limits have actually been able to use the debit reforms to their advantage.

According to an analysis by CNN Money that was verified by S&P Global Market Intelligence, America's three biggest banks -- JPMorgan Chase (JPM), Bank of America (BAC) and Wells Fargo (WFC) -- earned more than $6.4 billion last year from ATM and overdraft fees. Additionally, Wells Fargo, the largest debit card issuer in the country, making more than $1.8 billion in debit swipe fees last year alone, racked up $185 million in fines for its bad actions in the same year. If Congress repeals the law and closes off competition in the debit market, Wells Fargo stands to collect at least another $1.8 billion from merchants and consumers in hidden debit swipe fee taxes in the first year.

It is remarkable that at a time when Congress should be focusing on fostering competition, growing our economy and enabling job creation, instead, some are considering repealing a law that would have the opposite effect. It is time for Congress to stand with the Main Street grocers in every Congressional district across the country and oppose the mega-bank give away.

Leslie G. Sarasin is president and CEO of the Food Marketing Institute (FMI) and Peter J. Larkin is president and CEO of the National Grocers Association (NGA).

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