Don’t delay much-needed reform on bank “swipe fees”

By:  Editorial Board
Chicago Sun-Times

Stephanie Sack, who owns two Bucktown boutiques, is tired of paying hundreds of dollars a month in “swipe fees” to big banks, especially because the fees — assessed each time one of her customers uses a debit card — keep going up.

“In small businesses, every dollar counts,” Sack says. “This type of income leaving before it comes to your bottom line can be really detrimental.”

Stories like Sack’s led last year to an effort spearheaded by U.S. Sen. Dick Durbin (D-Ill.) to limit the fees banks can impose when someone uses a debit card. Rules capping the fees are scheduled to go into effect on July 21, but now there are efforts in both the U.S. House and Senate to delay their implementation.

Congress should reject those efforts and let the new rules go into effect.

Each time someone uses a Visa or MasterCard debit card, the bank that issued the card charges a fee of 40 cents to 45 cents or more, though the Federal Reserve found the actual processing cost is only 4 cents. Because consumers typically use debit cards for smaller transactions while putting the big stuff on their credit cards, debit card swipe fees can take a significant bite out of a retailer’s profits.

Nationwide, businesses are paying $16 billion to $20 billion a year in debit card fees, a cost that partly gets passed on to all consumers, even those who use cash. (Researchers Robert J. Shapiro and Jiwon Vellucci estimate the average annual cost at $230 per household for both debit and credit card swipe fees.) Partly because businesses have no way to force fees down, short of the financially suicidal option of refusing all credit and debit cards, the fees have shot up in the last decade.

Banks call caps on swipe fees a form of unwise price controls and say the caps actually would harm consumers because banks would make up for the lost revenue by tightening credit and possibly ending customer reward programs and free checking accounts. They also argue that small banks could be forced out of the business.

But the law exempts smaller banks with assets of less than $10 billion. And why should poorer families who are more likely to pay cash subsidize reward programs for wealthier card users?

The banks’ call for a delay got a boost two weeks ago when the Fed said it would miss an April 21 deadline to draw up new rules. But the Fed also said it could finish the rules in time to implement them on July 21.

Stick to the July deadline. Swipe-fee reform is needed.