On Tuesday, President Barack Obama will ask Congress to get tougher with speculators who are increasing the cost of gasoline by gambling on future oil prices. While Obama prepares his remarks, another battle over pump prices is under way between gas retailers, banks and credit card companies.
Consumers who purchase gasoline with a debit card are being shortchanged, according to the Electronic Payments Coalition, an association representing Visa, MasterCard and a variety of small and large financial institutions.
"Gas retailers got a windfall and consumers aren't seeing any savings from it," said the coalition's spokeswoman Trish Wexler in an interview with The Huffington Post.
At issue are "interchange" fees, the charges paid by a retailer to a third party to process a customer's credit or debit card payment. In 2010, after Wall Street collapsed, Congress passed the sweeping Dodd-Frank legislation, designed in part to reform the financial services industry. Embedded in that immense legislative package is the so-called Durbin Amendment, which aims to foster competition among retailers by placing a cap on the amount a company can charge a retailer to process debit card transactions.
Before the Durbin Amendment took effect in October, retailers paid an average of 73 cents in interchange fees when a consumer filled up the typical 16-gallon tank. After the amendment became law, the average interchange fee on 16 gallons dropped to 25 cents, based on Electronic Payments Coalition data. But, instead of passing along those savings to consumers in the form of discounts to those paying with a debit card, gas retailers are pocketing the difference to the tune of a billion dollars a year, according to the Electronic Payments Coalition.
Discounts aren't new to gas retailers. Rather, many convenience stores offer a per-gallon discount when consumers pay with cash, according to Wexler. She believes that retailers are more willing to offer cash discounts than debit card deals since customers using cash are more likely to walk into the gas station's store and, once in there, spend more money.
"Right now, a lot of people pull up to the pump, swipe their card at the pump, fill up and drive away. They don't go inside to buy a bottle of water or a sandwich," Wexler explained. "Cash discounts are often a way to lure the customer into the convenience store to buy items with marked-up prices because you may as well buy a candy bar or six pack of beer while you're in there."
More than one-third of gas purchases are paid for with a debit card, according to Phoenix Marketing International.
Gas retailers argue that they aren't making money off the Durbin Amendment, much less pocketing profits intended for consumers. Credit and debit card swipes often look the same to the computer processing the transaction, said Jeff Lenard, vice president of the National Association of Convenience Stores. As a result, debit transactions are often processed as credit card ones. Because credit card fees are not capped under the Durbin Amendment, Lenard said, the retailer can pay as much as $1.60 in interchange fees on a 16-gallon tank of gas (versus the 25 cents charged for a debit transaction).
"If EPC really wants to make a difference with consumers and provide discounts, they would be advocating for a change in how debit cards are recognized at the retail level," said Lenard in an interview with The Huffington Post.
The National Association of Convenience Stores estimates that swipe fees could cost consumers an extra $30 a year in gas purchases.
The lack of discounts for debit card purchases is not unique to gas stations. Last fall coalition representatives purchased a variety of staple products, including milk, peanut butter, batteries and light bulbs, both before and after the implementation of the Durbin Amendment in a series of 84 shopping trips to four major retailers in six cities. The researchers "found no evidence of any savings being passed along to consumers in the form of lower prices as a result of the Durbin amendment," according to the report.
"Absolutely this is a problem across the board," said Wexler, who added that her association is now focusing on gas retailers because fuel prices are currently high.
She pointed out that a handful of gas retailers are offering debit card discounts. "There are some gas retailers there that are offering discounts," she said. "So why isn't it more widespread?"