For a mid-summer prize fight you can’t get a better card than Wall Street vs. Walmart.
At stake is the rate retailers, restaurants, hotels and other sellers of products and services pay banks and credit card companies to allow customers to swipe their debit cards at check out. Unless Congress decides otherwise, the fee drops to 12 cents a transaction July 21.
Nominally, banks and credit unions with assets under $10 billion are exempted from the “interchange fee” caps, but even the Federal Reserve acknowledges that market forces will likely force the caps across the board.
It’s a brawl so ugly that the normally combative Speaker of the House John Boehner is reported to want no part of it. The fight is in the Senate, where a non-partisan coalition is backing a bill to delay the caps for two years. Backers say the fees contained in the so-called Durbin Amendment (for Sen. Dick Durbin, an Illinois Democrat) came as a late entry in last summer’s financial reform legislation and failed to get adequate study.
While the “interchange fee” issue is climbing higher up the Washington priority ladder by the day, the issue is growing in importance in Mississippi as well — at least among those with a stake in the outcome.
“For the preponderance of truly small businesses in the state, it’s crippling,” said Mike Cashion, executive director of the Mississippi Hospitality & Restaurant Association.
He put current interchange fee per transaction levels for association members in the 33 cents to 38 cents range. The average restaurant in Mississippi gains a margin of about 4 percent on revenue of about $750,000 annually, Cashion said. “Everything that they are making is gone because of the high swipe fee.”
A recent Federal Reserve survey shows that debit cards are now used in 35 percent of non-cash payment transactions, and have eclipsed checks as the most frequently used non-cash payment method. As the usage has risen so have the fees.
The fees are fees paid by to the cardholder’s bank for each debit card transaction. Interchange fee schedules are determined by card networks and are generally the same for all issuing banks participating in a network. Merchants’ banks generally pass the costs associated with interchange fees through to merchants.
For mid-size regional banks in Mississippi like Trustmark and such large regional banks as Regions Bank, the fees are a key source of non-interest income the banks say help cover a range of free or low-cost services to bank customers.
Trustmark projects lost income from a 12 cent cap on merchant transactions would be from $4 million to $6 million from July through the end of the year. Regions hasn’t put a figure on its expected losses but says the fees at current levels bring in more than $350 million a year for the bank.
Nationwide, the fees are estimated to generate $16 billion a year.
No unsurprisingly, the American Bankers Association is among leaders of an effort to waylay the caps, calling them “deeply flawed” and warning they “could dramatically slash revenue that banks use to support basic checking accounts and other customer services.”
The ABA says the caps are an attempt by the nation’s big box retailers like Walmart, Target and Home Depot to get a free ride at the public’s expense. “If the rule is approved as is, big-box retailers will continue to enjoy all the benefits of debit-card transactions without paying for the value they provide. They will not pass their savings on to consumers and as they pocket more profits, consumers will be forced to pay more for their banking services.”
If there is room for compromise no one is saying so.
“We’ve already been taking a hit ad infinitum,” Cashion of the Hospitality & Restaurant Association said. “Why do we want to negotiate to get to a worst position than we’re already in?”
And, anyway, the rising cost of fuel and other products has left retailers, restaurateurs and hoteliers little room for flexibility, he added.
“We thought we were looking at a 1 to 2 percent annualized commodity cost. We’re at 4 percent going into May,” Cashion said.
Last year marked the first in recent memory that Mississippi saw job losses in its 75,000-employee restaurant sector, according to
Cashion, who said without the caps current employment can’t be sustained.
Cashion said he is puzzled why fees keep climbing as debit card use becomes more and more prevalent. “If it’s a market-driven commodity why wouldn’t the cost of transaction decrease as the volumes increases?”
For many merchants and hospitality business owners, shopping for fees is not an option, Cashion said. The banks that handle their business financing make such arrangements contingent on using “the bank’s plastic,” he said.
“I’m not saying it’s across the board but often it is tied in.”
Nowhere is debit use more frequent than at the gas pump. But that frequent use is fast siphoning income from the stores that sell the gasoline, said Phillip A. Chamblee, executive director of the Mississippi Petroleum Marketers and Convenience Store Association.
In populated areas of the state such as Jackson, debit cards are used in about 90 percent of gasoline sales, Chamblee said. In many instances, he said, the card issuers make more money on the interchange fees than the card issuers do on the fuel sales. “We’re trying to absorb as much as we can while the banks are trying to hit a certain number,” he said.
With pharmacies, said industry representative Robert H. Dozier, reimbursements are often set by government programs such as Medicaid or Medicare or by private insurers. With the fees that are in place, “many times it would be cheaper to look at the empty prescription bottle, give the patient a $5 bill and say we’re out of it. Can you go someplace else?” said Dozier, executive director of the Mississippi Independent Pharmacy Association.
Dr. Ken Cyree of the University of Mississippi is sympathetic to the plight of retailers in Mississippi and elsewhere. But why let he government dictate prices? asked Cyree, dean of the Ole Miss College of Business Administration and chair of the Mississippi Bankers Association’s School of Banking.
“I’m no politician,” he said. “But anytime you get the government in the practice of setting prices, it’s a mistake.”
If the fees are climbing, it’s because the value of debit card use is rising, he noted. “I don’t think they are charging something that the market wouldn’t bear. It’s better to let the market work through these things.”
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