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Banks charge merchants a quarter each time customers swipe their debit cards even though the mean cost of processing debit-card purchases has fallen to 4.4 cents. The Federal Reserve should ensure that the falling cost of debit-card processing is matched by lower fees.
March 19 -
The industry is breathing a little easier now that the Supreme Court declined to hear a case that merchants hoped would lead to even lower debit interchange fees.
January 20
Five years ago, Congress decided to take action on the bloated, price-fixed fees that banks charge merchants every time a customer makes a purchase with a debit card. It ordered the Federal Reserve to bring competition to the market by lowering fees to a reasonable sum.
Unfortunately, the Fed was swayed by heavy bank lobbying as it wrote the rules to implement the new law, settling on language that allows Visa and MasterCard to keep fees that are
This clearly goes against congressional intent. The survey offers proof that the Fed made a mistake in appeasing big banks and credit card companies.
In fact, even the least efficient banks are making a 500% profit on the fees they charge merchants to process debit card transactions, according to figures the banks report to the Fed and
Moreover, these are just the margins on the rates regulated by the Fed. Most banks aren’t covered by the regulations — and credit cards aren’t covered at all. So, the real profit margins from so-called swipe fees are actually many times higher than 1,000%.
This isn't just a problem for retailers. Higher fees also translate into higher prices for consumers. The fees inflate the cost of everything from gas to groceries to haircuts to restaurant dinners. The higher fees also prevent retailers from expanding or hiring as much as they would like, thereby putting a crimp in the entire U.S. economy.
This has all happened because Visa and MasterCard work with their banks to fix the fees that the banks charge merchants on debit and credit transactions. Such price-fixing is the most basic violation of antitrust law and American free enterprise. But the credit card companies still do it.
Nowhere else in our free-market system do such uncompetitive practices flourish. The results are clear: American merchants
Swipe fees have become
No wonder merchants feel they didn’t get the fair and free market Congress intended to create. It would have been better for everyone if the Fed had followed the law. Instead, they undid it.
The result is still better than the completely unfettered price-fixing we had before the new law was implemented. But there is much more that can be done to address the issue.
Under the new law, the Fed is supposed to review its rules on debit cards every couple of years. This study by its own branch in Richmond should spur the central bank to fix the problems it created and actually limit price-fixing to a reasonable level.
Unless it does, debit fees will continue to hurt business and consumers alike — and cause inflationary pressure throughout the economy.
Lyle Beckwith is senior vice president of government relations at the National Association of Convenience Stores.