Swiped: Banks, Merchants And Why Washington Doesn't Work For You
Time Is Money
Although a hotly contested issue in Washington, swipe fees barely register as a concern to most Americans. A merchant-sponsored poll last month of the issue found that nearly half of respondents were completely unfamiliar with it. Once it was explained to them, however, 70 percent backed Fed action to cut the fees.
In December, the Fed proposed to reduce the average debit card swipe fee by nearly 75 percent -- down from an average of 44 cents per swipe to just 12 cents. The rule was supposed to be finalized on April 21 and take effect July 21, but the Fed missed its deadline last week.
For every month the law is postponed, banks will make $1.35 billion on debit cards, according to Nilson Report data. That makes for a very motivated lobby. “The merchants had the advantage last year of caring only about this in the bill while the banks were worried about trying to kill the consumer bill and the other stuff,” says Rep. Barney Frank (D-Mass.), former chairman of the House Financial Services Committee. “This is now as important to the banks -- in fact, it’s more important to the banks than to the average merchant, which is what shifted this.”
Indeed, the American Bankers Association, JPMorgan Chase and Regions Bank count a total of eight new lobbying shops working on swipe fees in 2011, according to lobbying disclosure forms.
Banks began issuing cash cards in the 1970s as a tactic to automate services and cut labor costs -- more ATMs meant fewer bank tellers and check processing costs. When swipe machines were first introduced in stores, banks actually paid some merchants to accept debit cards. Later, swipes became free, and once debit cards had become ingrained in consumer culture, banks began charging merchants, and the costs keep going up.
The fees incense many merchants. Sheetz Corp. operates nearly 400 gas stations and convenience stores from Ohio to North Carolina, and CEO Stan Sheetz is pressing lawmakers hard to lower swipe fees. But unlike most retailers, Sheetz also serves on the board of a small bank that makes a fortune from fees. “From the bank’s standpoint ... it’s all gravy,” says Sheetz. “It’s a cash cow.”
Credit and debit swipe fees cost Sheetz $5 million a month, second only to labor costs among the company’s top executives, he says. “I am a die-hard capitalist pig,” Sheetz tells HuffPost. “That’s why Visa and MasterCard piss me off. ... They treat us like shit. The arrogance is unbelievable.”
Target Corp. spokesperson Morgan O’Malley says interchange is its second-biggest expense after labor, amounting to “hundreds of millions of dollars a year.” The retailers have taken the banks to court over the fees at least four times with little success. But one merchant has done more for the cause than any other.
Richard Niemann is the owner of the non-union Illinois grocery chain Niemann Foods and has been a Durbin confidante since the early ‘80s. When Durbin learned of the swipe fee issue, he immediately checked in with Niemann, who then lit into the banks.
“All along, my North Star in all of this was Rich Niemann, who would tell me the stories about how his business was affected by swipe fees,” Durbin says. Niemann’s support came with a price, however: In March, his record of workplace-safety and child-labor violations became political fodder for banks and their allies and the HuffPost Hill, a newsletter, reported on the matter. Durbin took to the Senate floor to lash out at the banks for targeting Niemann. "Some folks on the other side decided to go after and attack Rich Niemann as a businessman,” said Durbin. “I am going to stand with him.”
Banks argue that merchants like Niemann are not required to accept debit cards and that multiple judges have found that the companies are not violating antitrust laws. The merchants will pocket the money they’ll save rather than pass it on to customers, the banks say, insisting that there is no justification for government intervention.
For a flavor of the case the banks are laying out, look no further than a colloquy between freshman Rep. Sean Duffy (R-Wis.) and a top bank executive at a recent hearing.