Congress works to relieve retailers on costs of rising swipe fees on credit and debit cards

The Senate has passed an amendment to its financial reform bill to reduce so called “swipe fees” on credit card and debit cards – fees that stack up and can put a big ding in retailers’ profits.
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While shoppers love the speed and convenience of paying with plastic, retailers are suffering as they face rising fees for credit card and debit card transactions. Fortunately, relief may be on the way.

On May 14, the Senate passed an amendment to a broad financial reform bill that would require the Federal Reserve Board to determine “reasonable and proportional” fees for debit card transactions. The amendment would also allow retailers to offer discounts for those paying with cash, a check, or a low-fee credit card, and to eliminate minimum purchase requirements for credit or debit purchases.

The House passed its version of a financial reform bill in December, and the House and Senate must now come to terms on a final version of the bill. If the swipe-fee amendment survives this committee process and makes it to the President’s desk, it could work to ease the financial burden for retailers in the outdoor and fitness industries.

“The fees haven’t been a dramatic concern, but it has been an increasing burden on our stores and our net income over the past five years or so,” Jennifer Mull, owner and CEO of Backwoods (www.backwoods.com), a nine-store outdoor specialty chain based in Austin, Texas., told SNEWS®. Mull said the number of card transactions in the store has dropped (from 90 percent of all transactions to 70 percent) as more people are paying with cash, but the card fees are still a matter to deal with.

“The rates keep going up,” she said, “and it impacts the bottom line.”

The total cost of transaction fees has tripled since 2001, according to Craig Shearman, the National Retail Federation’s vice president for government affairs (www.nrf.org).

“If you throw debit and credit card fees together, it was $48 billion in 2008. That compares with $16 billion when we started tracking in 2001,” said Shearman.

The average processing fee for credit cards is 2 percent of the transaction, and the average for debit cards is 1 percent, said Shearman. He explained that the average rate has not increased greatly for “plain, vanilla” credit cards, but fees have risen dramatically for high-end cards that offer rewards, such as airline miles. “There has been a huge shift of consumers from plain credit cards to high-end, premium credit cards, and the high-end cards cost the retailer as much as 3 percent of the transaction,” said Shearman.

Another retailer who feels the pinch from card fees is Jeff Rowton, owner of Exercise Essentials (www.exercise-essentials.com), a fitness specialty retailer with stores in Knoxville and Nashville, Tenn.,

“It really affects our business, with tens of thousands of dollars in fees annually,” Rowton told SNEWS. He not only takes a hit with each card transaction, but his bottom line is also affected negatively when a consumer returns a product. “If you refund the purchase, they still don’t refund the processing fees, so that can be a few hundreds of dollars on a large-ticket item,” said Rowton.

For years, advocates for the retail industry have urged Congress to address the card fees.

“We have worked with Sen. Dick Durbin (D-Ill.) and other members of Congress going back five years now to get legislation to address the overall credit card fee problem, and obviously there’s been a lot of resistance from the credit card industry and the banking industry,” said Shearman.

Edward L. Yinling, chief executive of the American Bankers Association, said in a May 14 story in the Washington Post that reduced fees would hurt banks because they “incur substantial operational costs, such as maintaining infrastructure and protecting against fraud.” According to the report, Yinling warned that “banks would have to recoup those fees through other means.” He told the Post, "In order for banks to cover their basic costs, it will have to be charged back to the consumer.”

Despite the objections of groups such as the bankers association, the amendment drew strong support in the Senate, passing with a vote of 64-33.

“That’s a very strong margin,” said Shearman, who added that the strength of the vote signals that the measure has a good chance of making it through the committee process. He added that President Obama has said he would like to sign the broader financial reform bill by July 4.

--Marcus Woolf

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