Why now is the time for credit card swipe fee reform

Debit card swipe fee reform was one of the biggest stories of the summer, with retailers and banks going head to head on an issue that was costing the retail industry and its customers billions of dollars each year.

After months of lobbying, the Federal Reserve issued a ruling to cap debit card swipe fees at 21 cents per transaction (plus 1 cent for fraud in most cases and 0.05 percent of the purchase price). Although the cap was nearly double the 12-cent limit originally proposed by the Fed, it was widely heralded as a victory for retailers and consumers alike.

The new debit card rules will save the retail industry and its customers upwards of $6 billion per year. Retailers, in turn, will continue to develop innovative ways to pass these savings along to their customers with lower prices and better value. Additionally, the retail industry is already one of the largest private employers in the nation – directly and indirectly supporting one-in-four U.S. jobs and nearly 20 percent of GDP – and savings garnered from the swipe-fee ruling will help free up job-creating resources.

Simply put, what’s good for retail is good for the U.S. economy, and swipe-fee reform is good for both.

Even before those new rules began to take effect this month, some big banks have responded by announcing new fees on debit cards. When Bank of America unveiled their new fees on debit cards, the bank’s customers were understandably outraged. It’s their money the bank is charging them to use, after all. But because the bank has levied their new fees out in the open, other banks can and will compete for the attention of Bank of America’s dissatisfied customers.

Congress recognized and acted upon the fact that banks were charging exorbitant fees on debit cards, grossly disproportionate to the actual cost of handling the electronic transfer. A key reason that Congress got involved was because lawmakers understood that the interchange system was fundamentally anti-competitive and rigged against consumers and retailers.

However, reforming debit card swipe fees was only the first step. It is estimated that credit card interchange fees generate about $30 billion per year for banks and card providers – for comparison’s sake, debit card swipe fees will now generate “only” about $14 billion per year. And the vast majority of these exorbitant fees go directly to the biggest handful of banks and the Visa and MasterCard duopoly.

Now that the banks’ unfair practices regarding debit card swipe fees have been highlighted and addressed, it is clear that banks are hoping to use higher fees on debit cards to push their customers toward credit cards in order to maintain their bloated revenue lines. As this transition occurs, it is crucial that Congress once again shine a spotlight on bank-interchange practices. Swipe-fee reform is a two-part job, and we are only halfway done.

That is part of why NRF launched its 12-month “Retail Means Jobs” campaign in September. The multifaceted lobbying campaign will advocate for a Jobs, Innovation and Consumer Value agenda, an element of which will be calling for Congress to address credit card swipe fees.

Your support will be crucial moving forward. We are asking you to get involved and ask Congress to address this $30 billion issue. It was only through a unified voice that the retail industry was able to defeat the banks on debit card swipe fees, and we will need that same kind of engagement to finish the job.