Will House Financial Services do right by consumers – or banks?
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The House Financial Services Committee on Wednesday will begin discussing a plan to take the $30 billion in consumer savings from debit-card reform and start putting it back in the pockets of big banks. 

An amendment to the Dodd-Frank law, debit reform is one of the few parts of the law that directly affects consumers.


Every time a customer swipes a debit card, the bank takes a cut from the merchant. Before reform, Visa and MasterCard price-fixed this “swipe fee” for their member banks. 

Consumers wound up paying more for everything they buy – even if they didn’t use a card – because of the added burden on merchants of this gigantic fee.

Reform brought modest competition to this unfair, fixed market.

By limiting how high Visa and MasterCard can price-fix swipe fees, Congress gave banks incentives to compete: If the banks simply set their own prices, they don’t have any limits on how much they can charge.

Reform is working.  Not only have consumers saved that $30 billion, but one bank has started setting its own fees and competing.  Hopefully, others will follow suit.

If Congress repeals these reforms now, none of the banks will have any incentive to compete on price and the move toward a free market will stop in its tracks.

That, of course, will mean higher prices for all of us.

The reforms also stopped Visa and MasterCard from blocking their competitors from processing debit transactions. 

That means merchants get a choice of at least two competing networks to handle their debit-card transactions. So competitors like Star, Pulse, NYCE, Shazam and others can now compete on a level playing field with Visa and MasterCard.

The banks, not surprisingly, are trying to get their old uncompetitive market back – and take money back from consumers in the process.

Merchants, meanwhile, unlike the banks, survive in a fiercely competitive world where they must hold down prices to survive.

And an economist’s study of the first year of reform showed they did just that: Consumers saved $6 billion that year alone from reform, and it’s likely that amount has grown in the five years since reform has been in effect.

Government figures confirm the savings. During those five years, the producer price index (what retailers pay for the goods they sell) has risen 9.4 percent. But the consumer price index (what retailers charge consumers) has risen only 4.3 percent.

That proves beyond doubt retailers swallowed more than half the increase in what they pay for goods to keep prices low. Debit reform was a big reason. Recently the card industry hyped a survey showing merchants were happy with their fees, as if that somehow undercut the need for debit reform.

Instead what the banks either missed or think you’re too stupid to figure out is that of course merchants are happier with their fees: Thanks, of course, to debit reform. Look at it this way: Retail accounts for millions of jobs and a huge chunk of our economy.

Most retailers are small businesses, the backbone of our economy and big creators of jobs. And it’s no secret retailers are facing hard times these days with the transition from brick-and-mortar stores to the Internet, changing tastes and, of course, intense competition.

Why should we add even more burdens in the form of high debit swipe fees by bringing back price-fixing? Retailers aren’t asking for a leg up with debit reform. We’re simply asking that swipe fees conform to the same free-market principles as the rest of our economy.

So when the Financial Services Committee convenes, we hope its members will remember the 50 million employees in retail and their customers depending on them to keep debit swipe fees fair and open to competition. And instead of repealing reform, we hope they go on to reform credit-card swipe fees, the highest in the world, and where the markup can run to 10,000 percent.

Everyone, and especially consumers, has a stake in this.

Budhwani is CEO at Encore Franchises LLC, a Birmingham, Alabama-area chain of convenience stores, and chairman of NACS, the Washington trade association for convenience and fuel retailing.

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