Opinion

After Debit Card Fee Reform, It’s Time to Focus on Credit Cards

Seven years ago, Congress decided the big banks were ripping off merchants and consumers on debit cards. Members introduced some old-fashioned competition to make this business fairer and your prices lower.

And recently, over the protests of the big banks, Congress reaffirmed its commitment to keep debit card fees fairer and more competitive for merchants and consumers.

Now, you wouldn’t start building a two-story house and stop after only one story. You wouldn’t have only half a suit dry cleaned. So it’s fair to ask: Now that everyone (but the banks) agrees debit cards needed fixing and have benefited from reform, when will some fairness and competition come to credit cards?

Every time these swipe fees come up, the banks spew a smokescreen of disinformation, fearful of losing the tens of billions of dollars they’re gouging from small merchants and consumers.

But despite all their propaganda, there’s one fact they simply can’t deny or hide: that the fees the banks charge merchants when a customer swipes a credit card are rigged.

Just two companies, Visa and MasterCard, price-fix these fees for their banks at enormously high rates because there is no free market — and so no competition.

These “swipe fees” cost merchants as much as 4 percent off the top of a $100 load of groceries, or $4 – even though it costs the bank only a few pennies to process the transaction. Profit margins for the banks can run as high as 10,000 percent.

Unlike banks, merchants are keenly competitive and subsist on minuscule profit margins, often no more than 1 percent. So they must pass these outrageous fees on to customers in higher prices or risk going under.

You pay those higher prices whether you use a card or not, which is especially hard on the poorest families. The average family pays more than $400 a year extra on groceries, gas, clothes and every other consumer product just because of swipe fees – an especially big bite for poor people.

You probably haven’t heard much about these swipe fees, and that’s the way the banks like it.

Not only do they raise your prices, they impose a harsh and unfair burden on small merchants like the diner that sells you your coffee in the morning, the station on the corner where you gas up your car or the little convenience store where you pick up milk on the way home.

Without competition, in the last few decades swipe fees have exploded, thanks to the price-fixing. They are now merchants’ second-largest operating expense, after only labor. 

Because consumer spending is such a huge part of our economy, these onerous fees also mean a slower economy, fewer jobs and less prosperity.

The banks and the card companies have created a distorted industry that looks more like the trusts that dominated major industries such as railroads and oil a century ago than the free-market system we enjoy now.

They’ve been able to get away with it for so long because the business, despite the tens of billions of dollars at stake, isn’t something consumers can see. They only feel the impact in higher prices they don’t even know they’re paying.

But merchants know, because they pay these outrageous price-fixed fees every day.

It’s time banks had to compete on price just like every other business in the United States.

Educated consumers and policymakers should join us to start demanding that the banks and card companies stop rigging this part of the market. We need the entire card market to be fair, open and competitive.

Until then, though, there is still a lot of work for all of us to do. Let’s not leave this crucial reform half-finished.


Lyle Beckwith is senior vice president of government relations for NACS, the National Association of Convenience Stores.

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