Your debit cards are cheaper to use now: Credit cards should be next
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Banks gouge merchants – and, in turn, consumers – by charging outrageously high fees price-fixed by Visa and MasterCard for processing credit-card purchases. 

You don’t see it on your receipts or bank statements. But you definitely feel it in your wallet because your bank shaves $2 to $4 right off the top of every $100 you spend when you swipe your credit card to pay for, say, a bag of groceries or a pair of shoes. 

On a big-ticket purchase like a washer and dryer, these “swipe fees” could add up to $25 in merchant fees, even though each card transaction costs the banks just a few pennies to handle.

Unlike banks, merchants’ profit margins are typically only 1 or 2 percent on sales. So they have no choice but to pass much of the cost of these swipe fees on to their customers -- or risk going under. 

Most merchants can’t refuse cards. And they can’t negotiate a better deal with their banks because Visa and MasterCard rule this market the way the trusts once ruled entire industries like meatpacking and railroads.

So swipe fees have swollen into many merchants’ second-largest operating cost, after labor. 

Back in 2010 Congress decided the banks had had things their own way long enough, and introduced the potential for competition in debit cards as a first step toward reform. 

The nation’s largest banks could charge fees as high as they liked, provided they did so competitively rather than simply charging the fees dictated by Visa and MasterCard in lockstep. Those banks that didn’t compete, however, would face a cap of about 22 cents per transaction – roughly half the previous average.

The new law did not convince any of the big banks to compete – they chose the cap on fees over competition because they still rake in so much more money than they would in a completely free market. 

Still, under reform merchants have saved more than $8 billion a year and passed about three quarters on to consumers. The House of Representatives this year reaffirmed on both sides of the aisle its commitment to fairness and a free market by rejecting the banks’ demands to repeal debit reform. 

Now it’s time to clean up the rest of the market – credit cards. 

Swipe fees constrict growth and cost jobs. They inflate the cost of goods, which cuts consumers’ buying power. Swipe fees hurt small- business people, who struggle to pay these outrageously unfair fees.

And they hurt low-income consumers the most. Everybody pays inflated prices to cover these fees – even those without a credit card.

The card industry tries to justify its gigantic fees by claiming part of the money goes toward preventing fraud. But card companies appear to be happier charging exorbitant fees than actually preventing fraud. 

Consider the highly touted “EMV” credit cards that have been replacing traditional magnetic- stripe cards over the past two years; they have an embedded microchip that makes it more difficult (though not impossible) to create a counterfeit card. 

But the card companies left a huge loophole: The new cards don’t require customers to enter personal identification numbers – PINs. PINs have cut card fraud throughout the rest of the world by replacing illegible, easy-to-forge signatures. Without a secure, secret PIN, the new chip cards provide at best half the security the rest of the world enjoys. 

Why would Visa and MasterCard try to stick Americans with second-rate fraud prevention by denying them the use of a PIN? 

It goes back to stifling competition. Visa and MasterCard want to keep all card transactions in their own processing networks, which use signatures instead of PINs as verification. 

That keeps this business away from the dozen or so highly competitive PIN-based processing networks. The card companies are determined to keep their stranglehold on the market, even though the Federal Reserve says PIN transactions are seven times safer than signature transactions.

The failure to provide real credit card security is a flagrant abuse of power. And it is consumers and merchants who ultimately pay the price.  

It’s time to take card reform all the way. There are literally billions of dollars at stake in potentially lower prices, less fraud and economic benefits. 

It’s time that big banks and card company giants finally give U.S. consumers the best that competition and innovation offer.

Mallory Duncan is senior vice president and general counsel of the National Retail Federation.

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