As Congress prepares to begin its consideration of new legislation that will repeal the Federal Reserve’s cap on debit card swipe fees, the National Retail Federation has requested that Congress reject this legislation, as it would undermine competition and cost retailers and consumers billions of dollars.
The proposed bill would unleash new, higher, hidden swipe fees that could more than double without competitive routing options and the cap that are currently in place. Most consumers want the billions of dollars in savings to remain.
“Billions of dollars that retailers have saved under this cap have been passed on to their customers, and the vast majority of consumers surveyed have made it clear that they want those savings to continue,” NRF senior vice president and general counsel Mallory Duncan said. “Repealing this important consumer protection measure would drive up the price of almost everything consumers buy and create an unearned windfall for the nation’s largest banks. Big banks can’t be allowed to take yet another bite out of the consumer spending that drives the nation’s economy.”
The Dodd Frank Law set limits on what big banks could charge if they chose not to compete. Repealing the law would allow banks to raise the fees as high as they want, without fear of competition.
“Swipe fee reform pulled banks’ hand at least part of the way out of consumers’ pockets,” Duncan said. “We can’t let them put it back in again.”
Prior to reform, competition was also being undermined because the banks and their card companies locked processing competitors out of the marketplace. Debit card swipe fee reform reversed that, and, as a result, there is now an opening for debit networks who are faster, cheaper, more innovative and certainly safer; for example, they all use PINs. Repeal of these reforms will undo this progress and will drive swipe fees up even higher.
A survey conducted for NRF this summer found that 89% of consumers said the reform should remain in place. In addition, 84% said swipe fees should be set on a competitive basis rather than letting credit card companies set price-fixed fees charged by virtually all the banks that issue their credit and debit cards.
As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, debit card swipe fees are limited to a flat fee of 21 cents per transaction, plus 0.05% of the purchase price. On Sept. 13, the House Financial Services Committee began consideration of the Financial CHOICE Act, legislation sponsored by Chairman Jeb Hensarling, R-Texas, that would repeal debit swipe fee reform as part of a broader rewrite of Dodd-Frank.
Prior to the cap, banks charged retailers 1-2% of the purchase amount to process debit card transactions, driving up the total amount paid by consumers. That amounted to about 45 cents on the typical debit purchase but could come to several dollars on larger purchases. Without the cap, the typical debit swipe fee would likely go back to the previous 45 cents, if not higher, Duncan said.
Retailers have saved about $8.5 billion a year since Dodd-Frank was enacted, and most of the savings has been passed along to consumers, according to a study conducted by noted economist Robert Shapiro.
NRF is the world’s largest retail trade association, representing discount and department stores, home goods and specialty stores, Main Street merchants, grocers, wholesalers, chain restaurants and Internet retailers from the U.S. and more than 45 countries. Retail is the nation’s largest private sector employer, supporting one in four U.S. jobs – 42 million working Americans. Contributing $2.6 trillion to annual GDP, retail is a daily barometer for the nation’s economy. NRF’s This is Retail campaign highlights the industry’s opportunities for life-long careers, how retailers strengthen communities, and the critical role retail plays in driving innovation.