$40 billion at stake as Congress takes up swipe fees

Retailers and big banks are lining up for the beginning of a showdown on Capitol Hill this week as the House holds a hearing on legislation that would repeal debit card swipe fee reform that has saved merchants and their customers more than $40 billion over the past five years.

The House Financial Services Committee will hear from a five-member panel of think tank representatives at Wednesday’s hearing, without a single retailer invited to participate despite the legislation’s impact on the industry. But the hearing will be held the same day dozens of retailers organized by NRF and the NRF-chaired Merchants Payments Coalition will be in Washington to lobby against repeal, and many are expected to attend. NRF will submit written testimony and is also running digital ads and circulating petitions addressing consumer benefits, competition and retailers’ concerns that urge Congress to preserve debit card reform.

Senate Minority Whip Richard Durbin, D-Ill., the namesake sponsor of debit swipe fee reform in the Senate, and Representative Peter Welch, D-Vt., the measure’s chief backer in the House, are scheduled to speak before retailers Wednesday morning. 

“Debit reform has been settled law for the better part of a decade,” NRF Vice President and General Counsel Mallory Duncan said in an op-ed published in the Daily Caller. “Repeal would bring back the monumental unfairness of the rigged, uncompetitive market that existed before debit reform was enacted.”

“Repeal would bring back the monumental unfairness of the rigged, uncompetitive market that existed before debit reform was enacted.”

Mallory Duncan
NRF Vice President and General Counsel

The hearing will address the Financial Choice Act, a bill sponsored by committee Chairman Jeb Hensarling, R-Texas, that would reverse the Dodd-Frank Wall Street Reform and Consumer Protection Act. Passed in 2010, Dodd-Frank was landmark legislation that tightened banking regulation in an attempt to avoid a repeat of the financial industry crisis of 2007-2008 that led to bank closings and bailouts during the Great Recession.

In a statement announcing the hearing, Hensarling made no mention of debit card fees, instead focusing on Dodd-Frank overall and calling it a “mistake” that “failed to keep its promises.”

But the nearly 600-page Choice Act includes a two-paragraph section titled “Prohibition of Government Price Controls for Payment Card Transactions” that would wipe out the Durbin Amendment, a portion of Dodd-Frank that was the first legislation ever passed by Congress to bring soaring swipe fees under control.

The Durbin Amendment was enacted in response to the card industry’s non-competitive practice of price-fixing swipe fees, under which virtually all banks that issue cards charge merchants the same fees to process transactions. Durbin required the Federal Reserve to develop regulations resulting in “reasonable” debit card swipe fees that would be proportional to banks’ costs for processing the transactions.

Under the regulations, which took effect in October 2011 and apply only to the nation’s largest financial institutions, banks that set debit card swipe fees independently and competitively are free to charge as much as they like. But those that refuse are limited to 22 cents per transaction, down from an average of about 45 cents before Durbin was passed. So far, virtually all have refused to compete.

The limit saved retailers about $8.5 billion in the first year alone, with close to $6 billion of the savings passed along to consumers, according to a study by economist Robert Shapiro. Banks opposed passage of Durbin and have sought its repeal ever since, and convinced Hensarling to include repeal in the Choice Act.

Even with the savings from the Durbin Amendment, debit and credit card swipe fees still cost retailers and their customers more than $50 billion a year, driving up prices paid by consumers by more than $400 a year for the average household. The fees are most retailers’ second-highest expense, topped only by payroll.