Banks, retailers ready to go another round over credit card swipe fees

Retailers are pushing for changes to credit card swipe fees nearly a year to the day after they triumphed in one of the biggest lobbying battles ever.

The Federal Reserve lowered the fees that merchants are charged when customers swipe a debit card last year, handing a decisive win to retailers after a multi-million dollar advocacy war with big banks. The new rates took effect on Oct. 1, 2011.

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With that victory notched, retailers are coming back for more, this time setting their sights on a credit card market overhaul they say would end a bank monopoly on pricing and increase competition.

Banks are well aware of retailers' intentions and say they’re ready for the fight.

"We will definitely engage if, in fact, the retailers continue to push it," said Ken Clayton, the American Bankers Association's executive vice president for legislative affairs and chief counsel. "The banking industry continues to remain concerned about any efforts to set prices through government mandates. We don't think that serves policymakers' interests and, most importantly, consumers' interests."

The stakes are high for both sides, with credit card providers standing to lose billions of dollars if the swipe fees are lowered.

Retailers say they are charged between $40 billion to $44 billion in total transaction fees each year, with each credit card swipe costing an average of 2 percent of each transaction.

Banks are still smarting from last year’s decision on debit cards, which reportedly cut their swipe fee revenue from $22 billion per year to $15.4 billion, and could find themselves on the defensive again when the new Congress convenes in January.

Retailers say they have canvassed Capitol Hill and have found broad agreement that the credit card system is broken and in need of fixing.

"I was struck by the universal agreement, even across parties, from members’ offices that something is wrong with the credit card system," said Mallory Duncan, senior vice president and general counsel of the National Retail Federation.

"They recognize it as a problem. And the real question is how to introduce transparency as a first step toward competition."

The two big credit card companies, Visa and MasterCard, control 80 percent of the credit card market and dictate the amount of swipe fees that their member banks charge, according to retailers.

“Credit cards are the only place where banks do not compete on price," said Doug Kantor, counsel to the Merchants Payments Coalition, which represents a broad range of groups including grocery and convenience stores.

Merchants say the credit card fees have been rising at a 16 percent compounded rate year after year.

"This is not a functioning credit card market, there's no competition, and in the absence of that prices rise," Kantor said.

The retail groups say they aren’t wedded to any particular solution, but want an overhaul of the system to mirror the changes made to the debit card swipe fees, which were capped.

Banks say they are keeping a close eye on the messaging push from retailers but are striking a confident pose.

"I'm not losing sleep over it. Are we going to be vigilant in telling our side of the story? Yes," said Richard Hunt, president of the Consumer Bankers Association.

They say they're hearing that lawmakers have no interest in repeating one of the most bruising lobbying battles of the 112th Congress.

The fight over the Durbin amendment, the Dodd-Frank provision that led to the cap on debit card swipe fees, was intense, and the pressure led several senators to switch from supporting its enactment to backing its delay, if not outright repeal.

Hunt said he has heard from a "slew of senators" who either regret putting debit card fee caps in place or are not interested in extending the same policy to credit cards.

Banks also contend that a recent court settlement, which is opposed by NRF and the Retail Industry Leaders Association, should put the matter to rest.