As the U.S. economy continued to
struggle to recover from near financial collapse, lawmakers took a much-needed
shot at financial regulatory reform last year. Thankfully, their efforts
were largely focused on helping the backbone of this economy: small
businesses. And when President Obama signed the Dodd-Frank Act into law
last July, it included important bipartisan reforms to excessive debit card
swipe fees that have plagued America’s small businesses for ages. As a
member of the Board of Directors of the Fallbrook Chamber of Commerce, I
applaud their efforts to rein in these out of control fees and protect
consumers. However, now Wall Street banks and credit card giants have launched
a massive campaign to undo Congress’ good work and protect the profits and
perks that they have long enjoyed as a result of these outrageous fees.
We cannot let them succeed.
Swipe fees, or interchange fees, are paid every time a
consumer purchases a product or service with a credit card or debit card. These fees are a percentage of each
transaction that credit card companies and their member banks collect from small
businesses and anyone else who accepts credit cards or debit cards every time
the card is swiped, and in our increasingly cashless society – they add up
quickly.
The fact of the matter is that these excessive, and out of
control swipe fees are severely handicapping small business across the country
– especially amidst the economic downturn that we are still struggling to
overcome today. Since 2001 swipe fees
have tripled with Americans paying more than $48 billion in these fees in
2008. This 300 percent increase in swipe
fees equates to a tremendous expense for small business owners who have to make
tough decisions… and leads to grave consequences for merchants and
consumers.
Unemployment has recently begun to show improvement, but
remains high at just under 9% – and for small businesses that are counted on to
help generate new jobs, swipe fees are considered part of the obstacle to
economic recovery. These fees have
forced small businesses to make cuts that prevent them from hiring new workers
and deny savings to customers due to inflated prices, no matter the customer’s
form of payment. Continuing with the
status quo will not help with small businesses’ efforts to lead this country to
a path of economic recovery.
Fortunately, Congress recognized the need to reform debit
card swipe fees and overwhelmingly voted to include reasonable reforms in the
Dodd-Frank Act. Specifically, they voted
to include an amendment offered by Senator Durbin that will ensure debit swipe
fees are ‘reasonable and proportional’ to the actual cost of transaction
processing. Now, the Federal Reserve (the Fed) is working on
rules that will guide implementation of these reforms, and the Durbin
Amendment. But the banks and credit card
companies are fighting reform every step of the way.
As part of its rulemaking process, the Fed completed a
survey of banks and found that the actual cost to process a debit card
transaction is 4 cents. This is a far
cry from the average of 44 cents that the banks and credit card companies
charge for these transactions today. The
Fed’s proposed rule would cap debit swipe fees at either 7 or 12 cents –
amounts that would still allow for a profit margin anywhere between 75 – 200%,
which is more than any retailer would dream of charging! And although this middle ground approach that
would deliver much-needed relief to America’s small businesses and consumers,
Wall Street is pushing back. Hard.
Although I am disappointed by Wall Street’s efforts to
derail the reforms passed by Congress, I am definitely not surprised. The fact of the matter is simple – for small
business owners across the country, properly implementing these reforms means a
critical opportunity to grow their
businesses, offer better pay to employees, and pass savings on to their
customers. While for big banks and credit card companies, it means no
longer enjoying the sky-high profits and sensational perks that they have
enjoyed throughout years of out of control fees. They simply don’t want to give those up and
it seems as though they are willing to go to any and all lengths to ensure that
they don’t have to.
But the fact of the matter is that last year Congress
overwhelmingly sided with small businesses on this issue, and agreed that
reform is needed. As we revisit this
issue now, it’s time to figure out who really is a friend of small business. For the sake of small businesses and
consumers across the country, I sincerely hope that we can count on Congress to
stand strong, even when those high-paid banking lobbyists come calling.
When it comes to swipe fee reform, Congress got it right
last year. I hope that you will join me
in urging Congress to protect the Durbin Amendment and ensure that the reforms
passed are enacted, on time.