retail news in context, analysis with attitude

The New York Times has a page one story this morning about how “banks and debit card companies are engaged in an all-out assault on Capitol Hill, enlisting a growing cadre of lawmakers and lobbyists to push for changes, delay or outright repeal” of legislation that restricts debit card swipe fees, reducing them from an average of 44 cents per transaction to 12 cents per transaction.

The restrictions were part of broader financial reform legislation passed by the US Congress last year. According to the story, “Merchants, who had complained that the $20.5 billion in annual fees were biting into their profits, were elated. Banks were stunned. Their lobbyists tried to reverse the move, but when the overhaul of the nation’s financial regulation was passed by Congress last July, the debit card cut survived.”

But now, with the Federal Reserve due to issue specific regulations by next month, reform opponents see this as their last chance to reverse the legislation. The Times writes that “banks contend the proposed cut in fees ... will leave many of them unable to afford to issue debit cards to customers or will force them to raise other consumer banking charges to cover the costs. They also claim retailers will reap unfair profits.”
KC's View:
Well, I think that when banks talk about “unfair profits,” we at least ought to concede that they know what they’re talking about, because they’ve been reaping unfair profits from debit card fees for years. They spend millions of dollars on ad campaigns to convince people to use signature debit cards rather than cards that are verified via the use of a numerical code ... because they make higher fees on the signature cards. And quite frankly, it is hard for me to muster up any sympathy for the financial services community.

Sure, it is possible that retailers won’t respond to lowered debit card fees by cutting prices ... but as I say, it is amusing that banks would object to such a thing. (Apparently it is only them that are allowed to behave inappropriately.) But I even doubt that this will happen...because as soon as a couple of retailers lower their prices because of decreased swipe fees, it will force others to do so. The market will prevail, and it ultimately will be good for consumers.

I’m really tired of a system that is so weighted in favor of the debit card issuers; the danger now is that millions spent on lobbying could yet again swing the pendulum in their direction. That’d be a shame.