Consumer savings to vanish If Congress pulls the plug on reforms for debit cards

Six years ago, Congress saved consumers billions of dollars a year by introducing good old-fashioned competition to a business consumers rarely see but that drives up the price of every single thing they buy. This reform saved Americans $6 billion in the first year alone, says a noted economist, not to mention supporting more than 37,000 jobs.

So why are some members of Congress talking about returning to the bad old days of price-fixing fees, squashing competitors and higher prices? Because the big banks want those billions of savings back in their own coffers, not in your pocket.


Retail is the most competitive business on earth. Among supermarkets, say, or gas stations or selling jeans, it’s always been survival of the fittest. If lettuce or pork chops or soap is too expensive at one grocery, for instance, you can always simply drive down the street to another.

Except something was interfering with this free market. Unfortunately, the banks that we merchants rely on to process our customers’ debit- or credit-card purchases were not living by the same rules of competition. Just two companies dominated that business – Visa and MasterCard. They price-fixed the fees their member banks charged merchants every time a customer swiped a card.

Without significant competition, the banks could mark up these bloated “swipe fees” 1,000 percent for debit cards and as much as 10 times that for credit cards. Because retailing is so competitive, we have to keep our prices low. So our profit margins are down around our ankles – often just 1 or 2 percent.

That means we have to raise prices to cover these outrageous swipe fees or risk going under. Congress stepped in to the debit-card market six years ago by stopping the credit card companies from squashing their competitors. Now, there is a competitive market in which merchants can choose between at least two different networks to process debit transactions.

Debit reform also set limits on the card companies price-fixing of the fees that banks charge. That encourages competition by letting banks charge whatever they want as long as they set their own prices rather than participate in the price-fixing led by the credit card giants.

Now, opponents are throwing up a smokescreen of distortions and misinformation as they try to repeal reform and return to gouging consumers and merchants. Government statistics show merchants have used their savings from reform to hold down prices.

Since debit reform took effect five years ago, the government’s producer price index – what retailers pay for the goods they sell – has risen 9.4 percent. The consumer price index rose less than half that, or 4.3 percent.

So retailers have absorbed more than half the increase in their cost of goods. In fact, the figures show retailers passed along even more in savings to customers than debit-reform created because the competitive nature of their business dictates that they must.

Even with the modest debit reforms, credit swipe fees have continued to rise and the combined credit and debit fees are merchants’ second-highest operating expense.  In all, merchants pay $80 billion a year in these fees. Some merchants pay more in swipe fees than they earn in profits.

The fees are so egregious that they weigh down small Main Street merchants; keep retailers from expanding and creating more jobs when the country really needs them; and pinches the entire economy as consumers pay inflated prices as their buying power is taken up in swipe fees.

It’s time for this outrage to stop. Congress should reject this gambit to repeal debit reform. Repeal would undermine the free-market principles that made this economy the largest and most innovative in the world. In fact, we need to bring even more competition and shed more light on this broken market.

We need disclosure and competition on credit card swipe fees. We shouldn’t let an outmoded, monopolistic way of doing business stand in the way of progress toward lower prices, more jobs and a brighter economy.

Mr. Ricker is chairman of Ricker Oil Co. Inc., a chain of convenience stores in the Indianapolis area

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