October 1, 2011 will forever be a meaningful day for retailers. It is the day that long-awaited debit swipe fee reforms will finally go into effect, and setting the stage for future reforms that will eventually fix this broken market and provide meaningful relief for retailers and their customers.
Although debit swipe fee reform was greatly weakened by a deeply flawed Federal Reserve implementation rule, the reforms that take effect Saturday represent a critical step and a toehold from which the merchant community can pursue greater reforms.
None of this would have been possible without bipartisan support on Capitol Hill, the strong commitment of Senators Dick Durbin, Mike Enzi, Jack Reed, Representative Welch, the Members of Congress from both sides of the aisle who voted for reform, and the thousands of merchants, small and large, that fought to fix this broken system. Their successful effort means that for many merchants and consumers, long-awaited relief is finally here.
Swipe fee reform, which was signed into law in July 2010, set out to rein in out of control fees imposed on merchants and customers by Visa, MasterCard and the big banks. These fees, which are centrally set by Visa and MasterCard have exploded in recent years and cost merchants nearly $20 billion each year. Reform legislation sponsored by Senator Durbin required the fees be “reasonable and proportionate” to the cost of the transaction.
In July the Federal Reserve capped these fees at 24 cents, nearly double what it had proposed seven months before and six times higher than what its own data showed the transaction cost to process.
While tomorrow is a monumental for many retailers and consumers who will finally see relief from these fees, for many others the opposite is unfortunately true. Last week Visa and MasterCard began alerting issuing banks that it would treat the Federal Reserve cap as a minimum as well, guaranteeing fee hikes for merchants, such as convenience stores and coffee shops, who process small transactions.
This action by the card network is a direct result of the deeply flawed Federal Reserve rule. Their rule has given license to Visa and MasterCard to hurt those retailers that the law set out to help. This is terribly unfortunate, but it is why RILA will continue to highlight the failures of this broken market and to continue to fight for reforms that will bring competition and fairness and ensure that the relief intended by Congress reaches merchants and consumers nationwide.
It seems like every day someone is “discovering” another unintended side effect of the limit that the Federal Reserve placed on debit card transaction fees, which took effect in October. The thing about all these unexpected side effects is that they were all both predictable and described in some detail on our blog and elsewhere long before the interchange limit was enforced.
No one who was paying attention and had actually bothered to look into the numbers should be surprised. The type of situation we have here is strikingly similar to, although not quite as potentially disastrous as, the European crisis in that in both cases politicians and their advisors were cheerfully ignoring the experts’ early warnings only to later declare, when it turned out that the experts had been right all along, that everyone was surprised with how events were unfolding. http://blog.unibulmerchantservices.com/another-durbin-amendment-side-effect-gets-the-limelight