The Truth about Swipe Fees

Matt Klink
President, Klink Campaigns

Richard Kennedy, in his one-sided
article, "Protecting the Durbin Amendment is Critical to America’s
Small Businesses
," completely missed the boat about the
real impact of so-called "swipe" or interchange fees, the small fee that
consumers pay when they use a credit or debit card.

To quickly summarize the issue, at the behest
of large national retailers, Senator Durbin (D-IL) included an amendment in the
Dodd-Frank Act last year that allowed the Fed to fix prices on what banks and
other financial institutions charge merchants each time they swipe a
transaction.  By reducing fees, consumers
would "supposedly" benefit.  Majorities
in both the House and Senate jumped on board and passed this legislation.

Ultimately, the idealism of the Durbin Amendment
is giving way to the practicality of implementing it…and the law of
unintended has come into play.  In
Congress’ zeal to reign-in large banks, they will likely end up hurting
consumers and punishing credit unions and smaller community-owned banks.  Large retailers, with Senator Durbin as their
mouthpiece, argued that the consumer would see an immediate benefit in price
reductions should the Durbin Amendment be enacted.  Unfortunately, nothing in the Dodd-Frank bill
prohibits retailers from simply pocketing the difference – a windfall for
large, national retailers but no consumer benefit.  Or, framed the other way, retailers aren’t
required to return any profit to consumers. 

Earlier this month, the Wall Street Journal editorialized about the side effects of the Durbin
Amendment and mentioned that a bipartisan group of Senators, including some who
initially supported the Durbin Amendment, are now trying to delay the
rule-making for two years because of its unintended consequences. 

In that same editorial, it stated,
"Even Barney Frank, the maestro of politicized credit, has said the Fed’s
proposed rule sets the fees too low and is better left to the market, ‘Unfortunately
the evidence we’ve seen elsewhere is that consumers don’t get any benefit from
this,’" he added.

What are some of the Durbin Amendment’s
unintended consequences?  Well, it will
likely mean the end of "no-cost checking."  Large banks are already changing their fee
structures to accommodate this reality. 
Who gets hurt?  Lower and middle
class consumers, who rely on no-cost debit cards or free checking at their
locally owned credit union, run the risk of new fees.  Equally important, as operational costs shift
from retailers to financial institutions, the Durbin Amendment will likely aid
its intended target – large financial institutions that can absorb increased
costs – and hurt the "the little guy" – the credit unions and small,
community-owned banks. 

Like Mr. Kennedy, we all want an
economic recovery, one that is deep and sustained, where businesses thrive,
financial institutions begin lending again and consumers have greater
purchasing power.  Amendments like Senator
Durbin’s hurt America’s economic recovery by making it more difficult for
credit unions and small community-run banks to compete.  Implementation of the Durbin Amendment needs,
at a minimum, to be delayed, if not repealed outright.  That’s good for consumers and, ultimately,
good for America’s economy.

Matthew N. Klink is a regular contributor to Fox
& Hounds.  His public affairs firm,
Cerrell Associates Inc., represents the California and Nevada Credit Union
Leagues.

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