As a retailer and a consumer, I commend Congress for agreeing to preserve competition in the business of processing debit-card purchases.
House leaders recently dropped part of a bill that would have repealed debit swipe fee reform and cost consumers and small business billions of dollars. That money would have gone instead into the pockets of banks in the form of bloated, uncompetitive swipe fees.
This reform has saved consumers and merchants $40 billion since it took effect five years ago. From everything you buy every day, from tires to toiletries. That is why the banks fought so hard to overturn it. But despite applying pressure to Congress, they couldn’t turn back the clock on free markets.
Here’s how the business works: Every time you swipe a credit or debit card to pay for something, the banks slice a chunk of the price right off the top for processing these transactions, which cost those banks next to nothing.
They can get away with gouging small Main Street merchants and consumers because the banks simply don’t compete for this business. Instead, MasterCard and Visa so dominate the industry that they price fix these hidden “swipe fees” for their member banks.
Over the years, these fees grew into the second-largest cost of doing business for some merchants; second only to labor, making it harder to expand and hire more people and ultimately weighing down the entire economy.
By 2010, unfair, uncompetitive swipe fees had become such a huge problem that Congress decided to end this by introducing modest competition, starting with debit cards.
Congress added a bipartisan provision to the Dodd-Frank financial-regulation law passed after the financial meltdown, called the Durbin amendment; the amendment instructed the Federal Reserve to set reasonable limits on price-fixing by Visa and MasterCard.
In the first three years of debit reform, my chain of furniture stores saw fees on our transactions drop more than 80 percent — savings we passed on to our customers by not raising prices and by opening new stores throughout the southeast: 50 new stores in six years; men and women going back to work in the greatest industry ever.
The banks, however, would rather have the easy money from price-fixing than compete on prices, and they’ve been trying to get reform repealed from the day it became law. If Congress had killed reform, there would have been nothing to stop banks from goosing swipe fees even higher, meaning higher prices for shoppers.
My family has been selling home furnishings since 1904, and our motto has always been “Badcock Will Treat You Right.” It remains our slogan to this day, but almost everything else in our business has changed.
These are challenging times for retailers — not only swollen swipe fees but the explosion of internet shopping and other changes. It’s not in the public interest to weigh us down with onerous and unfair swipe fees just when the economy needs jobs and a jolt.
And now we need to bring competition to credit cards, which skim an average of more than $2 from every $100 spent at my stores on a service that costs the banks only a few pennies.
And, ultimately, we need to price competition for all the emerging payment technologies where, for instance, you wave a cellphone at a cash register.
I think we’d all rather see a fairer and more transparent market that looks like the rest of our free-market system — a system which, after all, built the largest economy in the world.
Wogan S. Badcock III is executive vice president of government and public affairs at W.S. Badcock Corp., the parent of Badcock Home Furniture and More.
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