The National Retail Federation urged the Senate to approve amendments to financial services reform legislation that would direct the Federal Reserve to determine “reasonable and proportionate” transaction fees for debit cards and make it easier for merchants to reward customers who pay by cash, check or debit rather than credit card.
“Allowing banks to continue skimming off the top of debit card payments is unfair to both merchants and our customers,” NRF Senior Vice President for Government Relations Steve Pfister said. “For Main Street America, these amendments would restore full faith and credit to the handling of our nation’s currency.”
“Debit cards are merely an electronic form of checks and were initially marketed as such,” Pfister said. “Banks honored debit transactions at face value because of the savings over the costs of handling paper checks. However, in recent years those same banks have begun charging a transaction fee on these plastic checks, exploiting the lack of specific congressional authorization for the Fed to govern these products.”
As a result, merchants estimate that they paid more than $10 billion in fees on debit card transactions last year when paper checks drawn on the same accounts would have passed at face value, and the fees drive up prices charged to consumers, Pfister said.
Debit card fees are part of the $48 billion in interchange fees collected by Visa and MasterCard banks each year. Averaging about 2 percent for credit cards and 1 percent for debit, interchange is a fee charged to merchants each time a customer swipes a card to pay for a purchase. Under card industry practices, the swipe fees are passed along to consumers, driving up retail prices an estimated $427 for the average household each year.
Majority Whip Richard Durbin, D-Ill., last week introduced a package of amendments to S. 3217, the Restoring American Financial Stability Act of 2010, the financial services reform legislation being debated in the Senate, saying he wanted to help “bring some fairness” to the interchange system.
One Durbin amendment would require the Federal Reserve to establish “reasonable and proportionate” interchange fees for debit transactions. The fees would have to take into consideration both the actual cost of processing the transactions and the fact that paper checks are paid at face value rather than being subject to interchange. Credit unions and banks with assets under $1 billion would be exempt. The requirement comes as debit transaction fees, while lower than credit card fees, are being increased by the card industry.
Another amendment would prohibit card companies from interfering with merchants’ ability to offer a discount or other benefit to customers who pay by cash, check or debit card rather than credit card. Cash and checks aren’t subject to interchange, and fees for both signature and PIN debit are usually lower than those for credit cards. Discounts could also be given if consumers used a card network that offered lower interchange fees than a competitor. Current federal law allows merchants to offer a discount for customers who pay with cash or check but doesn’t address debit cards or cards with lower fees. Despite the federal law, card industry rules and contracts effectively block merchants from offering a discount in actual practice.
In lieu of discounts, customers who don’t use credit cards could be rewarded with non-monetary benefits such as free gift wrapping in a retail store or a free loaf of bread at a supermarket, for example.
Durbin is also the sponsor of S. 1212, the Credit Card Fair Fee Act. First introduced in 2008, the measure would require Visa and MasterCard banks to negotiate with merchants over interchange fees rather than continuing to impose them on merchants on a unilateral basis. A three-judge panel would have authority to enforce the requirement
