Yesterday the U.S. House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing titled, "Understanding the Federal Reserve??s Proposed Rule on Interchange Fees: Implications and Consequences of the Durbin Amendment." Chaired by Representative Shelley Moore Capito (R-WV) the hearing was a firework display between members of Congress, merchants and the big banks.
The eighth congressional hearing on swipe fee reform was very much like the previous seven: Retailer groups explained how fixing the broken swipe fee system benefits consumers, while the banking lobby sought to distract and scare members of Congress.
On December 16, 2010, the Federal Reserve issued a proposed rule, as directed by Congress in the financial services reform bill, to issue rules to ensure that debit swipe fees are reasonable and proportional to the processing costs incurred. The Federal Reserve also asked for public comments to the rule, which are expected to be finalized on April 21 and implemented by July 21.
At the hearing yesterday there were two panels of witnesses invited to discuss the Fed??s proposed rule. The first was The Honorable Sarah Bloom Raskin, governor of the Federal Reserve Board. While Raskin is keeping to the letter of the law in promulgating the Federal Reserve??s rule on interchange, she was nonetheless badgered by both sides of the aisle as members pushed her to declare that the Fed needed more time to look at the facts. She never agreed with that statement and simply noted that the Fed would implement whatever Congress passes into law.
The second panel included three witnesses from each side of the debate. Representing the merchants were:
- Gus Prentzas of Pavilion Florals
- Doug Kantor, Counsel for NACS and the Merchants Payments Coalition
- David Seltzer, Vice President and Treasurer of 7-Eleven
- The banks had their usual suspects:
- Frank Michael, President and CEO of Allied Credit Union; on behalf of the Credit Union National Association
- David Kemper, Chairman, President and CEO of Commerce Bank; on behalf of the American Bankers Association and the Consumer Bankers Association
- Josh Floum, General Counsel of Visa
Inevitably the theme of the day was "delay, delay, delay." Members of Congress who expressed intense desire to delay the implementation of swipe fee reform included: Representatives Kenny Marchant (R-TX), Jeb Hensarling (R-TX), David Scott (D-GA), Jim Renacci (R-OH), Fancisco Canseco (R-TX), Ed Perlmutter (D-CO) and Donald Manzullo (R-IL). Several others followed a line of questioning indicating they would also like to delay reform.
"A delay of this rule is certainly in order," said Representative David Scott (D-GA). "There are just some profound questions here, starting off with what is reasonable and what is proportional."
Representative Kenny Marchant (R-TX) followed up saying, "I don??t receive any complaints in my district from people who are complaining that their debit card fees are too high. The Fed needs to take more time and consider the impact the rule may have on smaller lenders."
And freshman member Francisco Conseco (R-TX) commented in his questions that he felt the "current timetable is too fast" and that he thinks "a delay is highly necessary."
It appeared that many members of the committee were falling over themselves to put on a show for the credit card companies and banks. Each taking turns reciting the banks talking points and asking the questions pre-scripted by the financial industry lobbyists. Committee members expressed a great deal of concern over what the banks called "government price fixing of debit interchange," but surprisingly very little concern over the fact that Visa and MasterCard have been "fixing" these fees for years. Others showed great concern over the profits and income stream of banks but surprisingly little concern over the profits and income streams of retailers.
Representative Peter Welch (D-VT), who has been a staunch advocate for merchants throughout the entire swipe fee debate, participated in the hearing despite not being a member of the committee. In his comments he focused on the fact that it was necessary for Congress to step in and fix a broken marketplace and that the regulations the Fed has proposed were indeed going to get the job done.
"Now, the way the banks agree to charge the same fees and the credit and debit card networks restrain competition undercuts any semblance of a competitive market, and merchants and consumers lose," Doug Kantor, representing the Merchants Payments Coalition said. "The impact on anticompetitive swipe fees on consumers is dramatic. The Durbin amendment and the Federal Reserve??s rules will help."
Kantor also said that the proposed rules will allow banks to still make a sizable profit on debit transactions. The proposed rulemaking by the Federal Reserve did not seek to eliminate debit swipe fees but to define a rate that was fair and equitable, with per-transaction rates of 7 or 12 cents both proposed.
"The Fed??s survey of banks found that (debit swipe fee) costs amounted to 4 cents per transaction, but the Fed??s rule allows for either 7 or 12 cents to be charged. That makes for average profit margins of 75 percent to 300 percent. Those are margins that no retailer would dare dream of making," he said.
In the end the committee showed great concern for consumers and the possibility that banks might start charging more fees if swipe fee reform is enacted, but failed to grasp the fact that consumers are already paying these fees through higher prices.
Retailers can take part in ensuring our hard fought battle does not get delayed or repealed. Go to nacsonline.com/grassroots and take action in the following three ways:
- Register for Swipe Fee Fly-in March 9-10 in DC
- Send letters to Congress in SUPPORT of Durbin Amendment
- Send letters to the Federal Reserve in SUPPORT of proposed Swipe Fee Regulations
For the latest news on the swipe fee battle go to the newly revamped site: unfaircreditcardfees.com
NACS Staff Contact: Lyle Beckwith, lbeckwith@nacsonline.com