Credit card companies and their member banks engage in anti-competitive activities to collectively set the outrageous rates they charge retailers for processing transactions. This behavior has forced the convenience and fuel retailing industry to pay the credit card companies substantially more than it makes in annual profit.
With more than two-thirds of consumers using plastic payment technology, most convenience and fuel retailers have no choice but to accept credit and debit cards. To do so, retailers must sign a contract that includes anti-competitive terms to reinforce the market dominance of the major credit card brands.
In 2006, convenience stores for the first time made less money — $4.8 billion — than they paid credit card firms for processing transactions — $6.6 billion. This situation has continued and in 2010 the industry reported profits of $6.5 billion and credit card fees of $9.0 billion. Often, the credit card companies make more at the pump than do retailers. From 2009 to 2010, convenience retailers delivered to Congress thousands of calls and letters and 5.4 million consumer signatures urging reform of the swipe fee system.
NACS believes the credit card system is broken and that the abuses of market power by Visa and MasterCard are detrimental to retailers and consumers alike. NACS has assembled a broad coalition of organizations and is leading the effort in pursuit of congressional and regulatory intervention. In addition, NACS is the lead plaintiff in a class action lawsuit against the credit card companies and their issuing banks on grounds of anti-trust violations.
It is important that Congress hear from retailers about the impact of interchange fees on your business. The banking industry has generated significant pressure on Congress by utilizing its substantial advantage in resources. The strength of the retail community rests with the broad grassroots support independent retailers can bring to the debate.
NACS and its allies pushed for the Durbin Amendment, which was included in the Wall Street Reform and Consumer Protection Act that President Obama signed into law on July 21, 2010. The Durbin Amendment directs the Federal Reserve Board to ensure debit interchange fees are “reasonable and proportional” to the costs incurred. In addition, it ensures merchants will have a choice of more than one unaffiliated network to process debit transactions, can offer discounts for preferred forms of payment and can set minimum transaction requirements (up to $10) for credit card transactions. While the banks pushed legislation to delay the Federal Reserve’s rules implementing the law, that effort was defeated in the Senate last summer.
The Federal Reserve has issued final rules that are disappointing. The rules limit debit interchange per transaction to 21 cents plus 1 cent for fraud prevention and 0.05% of the transaction to cover fraud losses. This is far more than the 7 to 12 cents per transaction originally proposed by the Fed. NACS and others have filed suit challenging the Fed’s decision on the fees and its narrowing of the network processing options that should be available under the law.
While the developments in the debit case unfold, we are now focusing our attention on credit card swipe fees. Bank of America’s botched attempt at imposing a $5/month fee for debit card usage gives us a tremendous opportunity to move forward. Using the BOA example, NACS and the Merchants Payments Coalition will be pushing the message that when hidden fees are exposed to the public, customers will indeed shop with their feet. Transparency of fees leads to competition, and competition leads to lower fees.
While legislative action is unlikely in 2012, we are embarking on the same Congressional and media education campaign that we successfully waged several years ago that lead to our victory on debit card fees.