Why the swipe fee “settlement” is far from settled

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When I first got “volunteered” to do PR on swipe fees half a dozen years ago, I thought this was a subject for what my old boss on Capitol Hill used to call “green eye-shaded accountants.” Who could care about a couple of percentage points on a credit or debit card transaction?

But when I told my brother, a Maryland optician whose stores had seen banks skim 2 percent or more off their already-narrow margins for years, I got an earful. And the same from my wife’s cousin, who owns a bakery in San Francisco where swipe amounts to an even bigger percentage on small-ticket items like a bagel and cup of coffee. And her other cousin, a jeweler in New York who can lose hundreds of dollars when a customer uses plastic to buy a wedding ring or Rolex. It turns out credit card swipe fees add up to $30 billion a year and have tripled over the past decade. As any retailer reading this knows, that drives up the prices merchants charge customers. And when prices go up, sales go down.

Retailers have been fighting these fees for years, but a key turning point in that battle is coming in the next couple of months. Lawyers behind a class action lawsuit against Visa, MasterCard and their banks have been sending out notices in the past few weeks asking retailers to decide whether to accept a $7.25 billion settlement in the case.

Unfortunately, the “settlement” is far from settled. Written by the card companies for the card companies, it does nothing to bring the fees under control. Retailers who take the money would be barred from participating in any future legal actions on the issue. And despite the headlines of billions of dollars, the average small retailer would see only a tiny amount of cash – as little as a few hundred dollars in some cases.

NRF is opposed to the settlement and has been authorized by our Board of Directors to fight it in court. Last week, NRF Senior Vice President and General Counsel Mallory Duncan hosted a nationwide conference call with scores of retailers to help them understand their options in the case. Retailers have until May 28 to decide on a number of issues, including whether to take the money and whether to file objections to other provisions of the settlement.

Duncan, by the way, is a true expert who has been working on this issue since at least 2005 (and earlier fights with Visa and MasterCard that date back to the 1990s). He chairs the Merchants Payments Coalition, which NRF formed with other trade associations to address swipe fees, and has testified before Congress and taken NRF to court to protect the rights of merchants and their customers.

All of that hard work was recognized this month in Associations Now magazine, which wrote, “From shoe leather on the Hill to crafting the right media message, the National Retail Federation’s Mallory Duncan helped put the spotlight on hidden credit- and debit-card fees.” The magazine even has his picture on the cover.

But the credit card settlement isn’t the only swipe fee news this week.

The Federal Reserve on Tuesday put out a new report admitting that the cap it set on debit card swipe a year and a half ago is four times what it actually costs banks to process the transactions. Even with its own report in front of it, however, the Fed refused to adjust the cap.

In 2011, the Fed cut debit swipe fees roughly in half by setting a cap of 21 cents. That’s better than before, but still far higher than Congress intended when it passed a swipe fee reform law in 2010. Now the Fed tells us in its report that the actual cost for the banks averages only five cents per transaction. That’s pretty certain to prompt outrage among retailers struggling to make a living and create jobs on Main Street while their profits are siphoned off by Wall Street.

NRF filed a lawsuit against the Fed over the debit swipe issue in 2011, and a hearing was held in court last fall. We are waiting for a ruling that could come any time now. And I’m still hearing stories from friends, relatives and owners of my favorite shops about how much they hate swipe fees.

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