© Getty Images
Big banks are making record profits these days, but they want more. Now they want Congress to double the fees big banks receive every time a debit card is swiped. This would be a gut punch to Main Street merchants who are already paying $18 billion per year in debit swipe fees, and lead to higher prices for consumers at the checkout counter and at the gas pump.
Rep. Jeb Hensarling (R-Texas) will soon reintroduce his massive Wall Street giveaway bill, filled with their big bank wish list like repealing the Volcker Rule and weakening the Consumer Financial Protection Bureau. He also is expected to include a repeal of a 2010 law, known as the Durbin Amendment, which finally reined in the debit swipe fee fixing that Visa and MasterCard created on behalf of the financial industry.
It’s no secret that the financial industry hates this swipe fee reform law. They had a sweetheart scheme going before reform — thousands of banks and credit unions were able to avoid competing with each other over swipe fee rates by agreeing that Visa and MasterCard would fix the same fees for everyone. Without competition, the fees always went up, averaging about 44 cents per transaction in 2010. It was a market failure, and merchants and their customers ended up paying for it.
The 2010 reform law said that if the nation’s top 1 percent of biggest banks got to let Visa and MasterCard fix their fees, then the fees must be reasonable and proportional to the cost of conducting the transaction. The Federal Reserve Board decided that a reasonable fee amount was about 22 cents, which is still quite lucrative for big banks since it only costs them 4 cents to conduct a debit transaction. The law allows the other 99 percent of banks and credit unions to continue allowing Visa and MasterCard to fix their swipe fees without regulatory limits. And if a big bank doesn’t want to be subject to fee regulation, the bank can simply set its own fee rates rather than using Visa’s or MasterCard’s rates.
If the swipe fee reform law is repealed, Visa and MasterCard will once again be allowed to fix fee rates like they used to. Big bank fee rates will double, giving an estimated $8 billion per year windfall to Wells Fargo and other bank giants, the equivalent of a multibillion-dollar tax increase on retail purchases.
Also, the 2010 reform law put an end to Visa and MasterCard’s anti-competitive habit of paying incentives to banks to block other debit card networks from handling the banks’ transactions. Repealing this would likely be the death knell for small debit networks that are desperately trying to compete with Visa and MasterCard. This is why Visa, MasterCard and their bank allies want repeal — they want to kill competition.
Congress needs to think hard about the future of American transactions and who will control them. Cash and checks are on the way out. Before long money transactions will be almost all electronic. Visa and MasterCard dominate the electronic payments industry, and for years they have been allowed to dictate the rules governing fees, security standards and card acceptance. They set these rules in ways that entrench their market dominance and maximize fees for themselves and their bank partners, even if competition, security and the consumer experience suffer as a result. For example, why is the U.S. the only major economy that uses chip cards without PINs when chip and PIN is faster and more secure? Because we let Visa, MasterCard and their bank allies set the rules, and they make more in fees when PINs are not used.
Main Street America deserves an electronic payments system with competition, transparency and reasonable fees. The 2010 swipe fee reform law helps provide that. Repealing the Durbin Amendment will double big bank debit fees, decrease competition, punish small businesses and raise consumer prices.
Rarely has the choice between big banks and Main Street been so clear. Congress, don’t vote to double debit card fees.
Durbin is the Democratic whip. Welch represents Vermont at large.
The views expressed by this author are their own and are not the views of The Hill.