Congress Shouldn’t Let Banks Kill a Reform That Saves Consumers Billions

Here’s an interesting problem in logic: Some members of Congress say they want to curb fraud and other abuses by large banks, yet they also want to let these same banks go back to the bad old days of gouging merchants and consumers for billions of dollars.

How does that make any sense?

Only if you fall for the smokescreen of disinformation, cherry-picked facts and outright lies put out by apologists for the big banks about a reform that has saved consumers and Main Street retailers altogether $40 billion.

Here’s the real story: By a bipartisan supermajority, Congress seven years ago started making banks compete in the business of processing debit-card purchases for merchants, a business that until then was completely rigged by the banks, Visa and MasterCard in complete contravention of every principle of the free-market system that made us the biggest economy in the world.

The card companies price-fixed the outrageous “swipe fees” their member banks charged merchants every time you swiped your debit card to pay for something. And if you read their talking points, they’ve never denied this price-fixing, because they can’t.

So instead the banks cook up all kinds of flimflam that even some members of Congress have fallen for.

That’s why the House Financial Services Committee recently began discussing repealing debit-card reform.

How those members vote could mean a return of the bad old days – that $40 billion consumers and retailers have saved from reform will wind up in the banks’ pockets again; prices will be higher; small businesses will suffer; and the entire economy will slow at a time when we can least afford these problems.

All so a few banks, whose profits are at all-time highs, can gobble up money that should be going into your pocket if the business were fair and competitive.

One of their favorite lies is so easy to disprove that it’s laughable: That merchants kept their savings from reform rather than passing them on to customers in lower prices.

Let’s take a closer look at this utterly spurious claim.

First, unlike charging swipe fees, retailing is a highly competitive business. If the customer doesn’t like the price of gas — posted over their heads and visible from a block away — or the price of milk, they can simply drive on until they find it for less somewhere else.

Logic would dictate that merchants must pass on any savings or risk losing customers. Unlike banks, which still – even under the modest reforms of debit card swipe fees – mark up their fees 500 percent, according to the Federal Reserve, most merchants are lucky to see a profit margin of a percentage point or two because of competition.

But don’t take my word for it. Have a look at these incontrovertible federal figures.

In the five years since debit reform took effect, the producer price index, or what retailers pay for the goods they sell, has risen 9.4 percent.

But the consumer price index – what retailers charge customers – has risen only 4.3 percent.

That proves retailers have swallowed more than half the increase in their cost of goods in order to keep prices low. Debit reform has been one big reason.

Because retailers are so fiercely competitive, these numbers indicate merchants saved consumers even more than what merchants saved from debit reform.

This bank talking point, in short, like all the others, is nonsense. They’re desperately trying to get their hands back in your pocket and protect credit cards, which Congress has not yet reformed, and all the new payment technologies coming along that Visa and MasterCard also want to dominate.

Congress mustn’t let the big banks reverse the progress toward a fairer, freer market. If members really care about curbing bank abuses, they should start here, by saving debit reform.


Lyle Beckwith is senior vice president of government relations at NACS, the association for Convenience & Fuel Retailing.

Morning Consult welcomes op-ed submissions on policy, politics and business strategy in our coverage areas. Updated submission guidelines can be found here.

Morning Consult