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Swiped: Banks, Merchants And Why Washington Doesn't Work For You


First Posted: 04/28/2011 7:00 am EDT Updated: 07/11/2013 10:55 am EDT

WASHINGTON -- Charlie Chung runs Cups & Co., a coffee and sandwich shop in the basement of the Russell Senate Office Building. Known on Capitol Hill simply as “Cups,” the shop -- a rickety 20-second train ride away from the elevator to the Senate floor -- is always swarmed with lobbyists, staffers and the occasional senator.

If customers flash an American Express card to buy a banana, Chung waves them off: “Just take the banana. Don’t give me the card.”

Chung has run Cups for about a decade and says that plastic has allowed him to better serve a hurried and harried clientele. But Chung is still routinely frustrated with the card networks -- Visa, MasterCard and American Express -- that dictate the fees storeowners like himself must pay to process credit and debit card transactions. Why charge for a banana when card fees make it a losing proposition?

Fees are annoying, Chung says, but not debilitating. “They’re just like a phone company,” he says. “Delivery surcharge. Paper charge. Equipment charge.” There’s an additional fee for using cards from banks outside his contract, but Chung says he has no way of knowing until he’s gotten his bill how much of that pricier plastic has been swiped.

The fees Chung pays are a tiny fraction of Wall Street’s swipe fee windfall; banks take in a combined $48 billion a year from these “interchange” fees on debit and credit cards, according to analysts at The Nilson Report. That money comes out of the pockets of consumers as well as merchants, as stores pass on whatever costs they can to their customers.

Major retailers -- the Walmarts, Home Depots and the Targets of the world -- complain that card fees are one of their biggest annual expenses, and they’ve entered into a Capitol Hill battle royale against card companies to roll back the lucrative fee regime. Last year’s financial reform bill ordered the Federal Reserve to crack down on debit card swipe fees, a $16 billion pool of money from which $8 billion flows to just 10 banks. As a concession to Wall Street, credit card fees were left unscathed.

But the clock never ticks down to zero in Washington: one year’s law is the next year’s repeal target. Politicians, showered with cash from card companies and giant retailers alike, have been moving back and forth between camps, paid handsomely for their shifting allegiances.

The swipe fee spat is generating huge business for K Street: A full 118 ex-government officials and aides are currently registered to lobby on behalf of banks in the fee fight, according to data compiled for this story by the Sunlight Foundation, a nonpartisan research group. Retailers have signed up at least 124 revolving-door lobbyists. And at least one lobbyist has switched sides during the melee. Republican Thomas Shipman of Cornerstone Government Affairs registered to lobby for the merchant’s leading player, Walmart, in 2010, only to move over to Visa in 2011. (The firm’s executive vice president, Fred Clark, says that while Cornerstone is registered to lobby for Visa on “electronic payments,” the shop told the card company it wouldn’t lobby on interchange fees specifically, because of the appearance of a conflict of interest. He also says that while Shipman was registered to lobby on behalf of Walmart in 2010, he never specifically lobbied on the interchange issue.)

“Oh man, this is unbelievable. You’ve got the banking community, the financial community, pitted against the retail community,” says Sen. Mike Johanns (R-Neb.). “They’ve both been in my office and I’m a clear yes vote on this ... so you can only imagine those who are trying to figure this out or are still on the fence. They must be getting flooded.”

The flood fills the hallways with lobbyists and deluges the airwaves with ads. For weeks, Washington’s Metro system has been papered with pro-plastic ads on trains and station walls. It’s a way for card networks to flex their muscles, to put lawmakers and lobbyists on notice that they’re willing to spend big to win. “Where does Washington’s $12 billion gift to giant retailers come from? YOUR DEBIT CARD,’” blares one ad. This being Washington, a poster on the Metro was hacked by a swipe fee reform supporter, who crossed out “YOUR DEBIT CARD” and penned in “BANKS.”

A senior Senate Democratic Banking Committee aide, Peter Bondi, spotted the defaced ad and snapped a Twitpic. He sent it out on March 31, the day that a bill sponsored by Sen. Jon Tester (D-Mont.) was coming up for a floor vote. The Tester bill called for a two-year delay on proposed debit card fee caps that Assistant Senate Majority Leader Dick Durbin (D-Ill.) had pushed through Congress last summer.


“#Durbin supporters strike back against #Tester supporters on #metro ad campaign in swipe fee/interchange fee battle,” Bondi tweeted.

The swipe fee debate, as mundane as it may appear, is emblematic of how Washington works today -- and helps explain why Congress hasn’t passed an appropriations bill in years, can’t write an annual budget, is flirting with defaulting on the country’s debt and effectively gave up on job-creation efforts in the midst of a brutal economic downturn. There are, to be sure, a variety of reasons that Congress is zombified, but one of the least understood explanations is also one of the simplest: The city is too busy refereeing disputes between major corporate interest groups.

As swipe fees dominate the Congressional agenda, a handful of other intra-corporate contests consume most of what remains on the Congressional calendar: a squabble over a jet engine, industry tussling over health-care spoils and the never-ending fight over the corporate tax code.

The endless meetings and evenings devoted to arbitrating duels between big businesses destroy time and energy that could otherwise be spent on higher priorities. In America today, over 13 million people are out of work and millions more are underemployed. One out of every seven is living on food stamps. One out of every five American children lives in poverty. Yet the most consuming issue in Washington -- according to members of Congress, Hill staffers, lobbyists and Treasury officials -- is determining how to slice up the $16 billion debit-card swipe fee pie for corporations.

“Every time we go in to an office and tell them we’re here to talk about interchange, they cringe,” says Dennis Lane, who makes regular lobbying trips to Washington and has owned a Massachusetts 7-Eleven for 37 years. “I think there’s been more lobbying -- there’s been more hours and minutes spent on Capitol Hill discussing interchange reform -- than there has been talking about a shutdown of the government.”

The combination of high financial stakes and scant public attention to the faceoff between card companies and retailers has blurred party lines. Dozens of unlikely and influential figures have rushed to random sides of the swipe fee trough: Anti-tax advocate Grover Norquist, hip-hop mogul Russell Simmons, the Christian Coalition, teachers unions, Koch-funded think tanks, the NAACP, Karl Rove, Dick Morris, Walmart and Google. Even Mickey Mouse has made an appearance.

In Washington, the easiest way to derail somebody else’s good idea is to suggest delaying it while experts conduct a study. In the Senate, Tester is joined by Bob Corker, a Republican from Tennessee, in pushing the plan to postpone Durbin’s fee caps. West Virginia Republican Shelley Moore Capito is carrying a similar bill in the House, cosponsored by Florida Democrat Debbie Wasserman Schultz. When corporate interests are at stake, such bipartisanship tends to be much easier to secure.

President Obama recently tapped the Wall-Street friendly Wasserman Schultz to head the Democratic National Committee, a position generally reserved for party figures with the best fundraising ability. In the first quarter of 2011, members of the Electronic Payments Coalition -- the bank lobby fighting swipe fee reform -- gave more than $2 million to members of Congress and the two parties and more than $250,000 to cosponsors of Capito’s bill, according to an analysis done by the Sunlight Foundation for this story.

And that’s just direct contributions. Both sides have spent lavishly on TV and radio ads and face-to-face lobbying. After all, a mere month of swipe fee revenue amounts to more than the total sum a presidential campaign will spend between now and next November. Many of the ads openly attack big business, while giving no hints about their own corporate backing.

While cable news was recently overwhelmed by coverage of budget negotiations and a possible government shutdown, many of the nation’s most powerful political players were focused instead on the Tester amendment -- and on a lobbying scrum that even boggles the minds of seasoned politicians. “It’s the biggest issue in Washington right now,” says a senior Treasury official who’s grateful it doesn’t fall within his scope of responsibility.

“Everybody and their grandmother’s lobbying on this,” says Sen. Lindsey Graham (R-S.C.). Graham, who supported Durbin last year, hasn’t made up his mind on the Tester bill, but says the ongoing swipe-fee fight is one of the “top 10” most brutal and well-funded battles he’s seen in the Senate.

Not all of the interests in the fee fight are powerful. But small business owners like Chung who might benefit from swipe fee reform would be sharing in a victory that the big-box retailers are funding. This, in the end, may be the best little guys can hope for in Washington: to have their interests roughly align with those of powerful players.

One frustrated moderate Democratic senator asks to remain anonymous so he can speak freely about his legislative education. “I’m surprised at how much of our time is spent trying to divide up the spoils between various economic interests. I had no idea. I thought we’d be focused on civil liberties, on education policy, energy policy and so on,” the senator says. “The fights down here can be put in two or three categories: The big greedy bastards against the big greedy bastards; the big greedy bastards against the little greedy bastards; and some cases even the other little greedy bastards against the other little greedy bastards.”

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