Ed's Blog

Fed Doubles Down On Bet To Raise Swipe Fees

By Ed Mierzwinski
Consumer Program Director

Swipe fees are the fees stores pay to accept credit and debit cards. The fees are generally passed along to all customers, even cash customers. Numerous courts have found that Visa and Mastercard use abusive market power to force merchants to accept their highest in the world, non-negotiable swipe fees. Since the market wasn't working, Congress stepped in and ordered the Fed to write a rule lowering anti-competitive swipe fees.

The Fed, instead, raised them. Last month, here in DC, U.S. District Judge Richard Leon held that the Fed had blatantly ignored Congress.

But yesterday Federal Reserve Board General Counsel Scott Alvarez told Judge Leon it would appeal his July 31 opinion that the Fed's 2011 rule raising the swipe fees merchants pay to accept debit cards broke the law by ignoring Congressional intent to lower them.

The Fed's rule raising swipe fees harms small businesses, as well as their customers, who pay more at the store and more at the pump, even if they pay with cash. But it helps the Fed's big bank patrons.

Swipe, or interchange, fees generally include a flat fee plus a percentage of the transaction, which can range from 1% for a plain non-rewards debit card to as much as 4% for an airline rewards credit card. The merchant has no choice to decline the more expensive cards. If you take one card in a brand, you must "honor all cards," under Visa/Mastercard network rules.

The Fed's initial draft rule had actually proposed lowering swipe fees, as Congress had intended, to between 7-12 cents per average transaction, but the final rule doubled that amount to 24 cents. Visa and Mastercard immediately raised minimum swipe fees to around 24 cents per transaction, even though several small business sectors had previously paid lower rates in the 15-18 cents range. So, swipe fees went up, not down. The Fed stated that swipe fees would average "24 cents for the average debit card transaction, which is valued at $38."

In his opinion, Judge Leon stated that the "Board has clearly disregarded Congress's statutory intent by inappropriately inflating all debit card transaction fees by billions of dollars."

The Fed's rule was required to implement the PIRG-supported Durbin amendment to the 2010 Wall Street Reform and Consumer Protection Act. The Durbin amendment was supposed to lower the fees merchants pay Visa and Mastercard to accept debit cards. The bulk of the swipe fee goes to the card user's (or issuer) bank. The Durbin amendment lowering swipe fees only applies to debit cards issued by big banks; smaller banks, under $10 billion, are exempt.

Congress passed the amendment because for too long merchants had been forced to accept non-negotiable swipe or "interchange" fees due to what several courts have called the excessive "market power" of Visa and Mastercard. Market power simply means that while a merchant can choose to ignore America Express or Discover, ignoring Visa or Mastercard is impossible because it would anger customers. Merchants have to take Visa and Mastercards or lose business. Further,  merchants cannot negotiate price; they are forced to accept Visa/Mastercard terms. As the court explained: "Merchants know that if they do not accept those cards and networks, they risk losing sales, and "losing the sale would be costlier to the merchant than accepting debit and paying the high interchange fee."

In many cases, these fees are the second-highest cost of business for small merchants, after the cost of acquiring the items that they sell, but before the cost of rent, salaries and utilities. Burdensome contractual provisions with Visa and Mastercard also generally force merchants to pass the costs along to all their customers, rather than offering cash discounts or imposing surcharges for paying with plastic. Another provision of the Durbin amendment prohibits some of these terms, which had even prevented merchants from suggesting that consumers use cash, or a lower cost card. The Durbin amendment also limits the networks' ability to use anti-competitive practices to limit the number of networks available to merchants.

The revenues on too-high, non-negotiable swipe fees are used to increase rewards to cardholders -- meaning cash customers at the store are paying more, not just to cover bank costs, but to pay for cardholder miles and other rewards. A recent study by three Boston Fed economists has confirmed the cross-subsidy from cash customers to presumably more affluent credit card rewards customers.

"On average, each cash-using household pays $149 to card-using households and each card-using household receives $1,133 from cash users every year. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general.  On average, and after accounting for rewards paid to households by banks, the lowest-income household ($20,000 or less annually) pays $21 and the highest-income household ($150,000 or more annually) receives $750 every year."

So, some of the swipe revenue ( a lot of it, actually) merely goes to promote more use of cards. While opponents of swipe fee reform claim that banks will need to raise checking account fees to recoup the billions of dollars in ill-gotten swipe fee revenue that a fully-functioning, properly implemented Durbin amendment would eliminate, banks could simply eliminate debit card rewards without raising fees.

Doubtlessly, one reason that the Fed decided to challenge the court's ruling was to continue to assert its presumed regulatory power. By rejecting both Congressional and judicial control over its authority, the Fed appears to its patrons to have more authority, including in its other actions. But by doubling down on this particular bet, the Fed is taking a big risk. The court was very clear in its detailed analysis that the Fed was simply wrong. Judge Leon made his points in no uncertain terms. A few examples of his reasoning follow:

"This result [the Board's analysis] makes no sense, and more importantly, it is not the law....I reject the Board's construction of the Durbin Amendment as non-compliant with Congress's clear mandate....[The Board's analysis] runs completely afoul of the text, design and purpose of the Durbin Amendment."

U.S. PIRG will continue to support legal and Congressional solutions to the broken swipe fee market. Otherwise, all consumers, including cash customers and the unbanked, will continue to pay more at the store and at the pump due to unfair bank practices. As U.S. Senator Richard Durbin (IL) pointed out in his friend of the court, or amicus, brief to Judge Leon:

"[T]he interchange fee system was designed and operated by payment card networks and their issuing banks to avoid transparency and competition and to generate high fees that exceeded what could be sustained in a normal competitive market environment The enactment of the Durbin Amendment reflected a bipartisan recognition in Congress that reasonable debit interchange reform was needed to bring transparency, competition and choice to a system that lacked it."

Credit card swipe fees are the subject of a related preliminary private antitrust settlement between merchants and the banks and card networks. Many merchant associations, as well as U.S. PIRG and Consumer Reports (we both accept credit cards, so we are merchants, too) have objected to that settlement, which is before federal judge John Gleeson in New York. In U.S. PIRG's objection and request to speak at the pending fairness hearing, we note that the purported benefits of the settlement to merchants and consumers are false. I discuss further the severe deficiencies in this settlement, which would perpetuate Visa and Mastercard's ability to rig card markets, in a previous blog entry.

Comments

This store field is the reason 8% on the entire GDP associated with great britain. The actual high intensity in the full price field throughout UK is in ways that adjusted 2007, gross sales in the uk retail areas accounted intended for 265 mil fat, which were larger than economic climates regarding Portugal and also Denmark. The actual retail store field in the united kingdom is rolling out throughout nearly all the allied sectors for example electro-mechanical, garments and sneakers, health insurance and splendor, homeware, furnishings and flooring covers, BUILD IT YOURSELF along with Horticulture and e-retail. The key location in which there's huge progress from the full price industry will be the Upper Ireland in europe. • Slide within the need connected with product with no slip throughout high fixed price tag

I know your expertise on this. I must say we should have an online discussion on this. Writing only comments will close the discussion straight away! And will restrict the benefits from this information.
http://fb.me/2I8E9Uu9h
http://fb.me/1z6FGBNTX
http://redir.ec/mobilsedancorolla
http://goo.gl/xqhLHF
http://fb.me/32LE7izdi
http://vo.to/ciptojunaedy
http://vo.to/mobilsedancorolla dont forget to visit http://maskodoq.blogspot.com

Thank you for posting such a great article! I found your website perfect for my needs. It contains wonderful and helpful posts. Keep up the good work!
www.onlineprnews.com

I really like the dear information you offer in your articles. I'm able to bookmark your site and show the kids check out up here generally. Im fairly positive theyre likely to be informed a great deal of new stuff here than anyone else! www.achisite.com

model mayhem
Really solid, awesome, fact-filled information here. Your posts NEVER ever disappoint, and that certainly holds true here as well. You always make for an interesting read. Can you tell I'm impressed? :) Keep up the fantastic articles.

Your posts NEVER ever disappoint, and that certainly holds true here as well. You always make for an interesting read. Can you tell I'm impressed? :) Keep up the fantastic articles. risperdal claims

Great post, I believe blog owners should acquire a lot from this web blog its real user friendly. So much wonderful information on here :D.
http://farrara.net/indiana-personals-cheating/index.htm desperate cheating wives personals indiana free cheating wives personals, http://bright2000.com/alabama-naughty-hook-ups/index.htm hip hop hookup couples alabama dating flame hookup, http://bg2.info/georgia-married-women-looking-for-men/index.htm looking for married women georgia single womens looking for married men, http://ba-sat.com/indiana-married-but-lonely/index.htm married but lonely indiana married but dating, http://csealocal844.net/new-hampshire-personal-ads/index.htm swingers personal ads new hampshire interracial personal ads

The Fed's rule raising swipe fees harms small businesses, as well as their customers, who pay more at the store and more at the pump, even if they pay with cash. But it helps the Fed's big bank patrons. Check this site

I'm able to bookmark your site and show the kids check out up here generally. Im fairly positive theyre likely to be informed a great deal of new stuff here than anyone else!
Felix masło orzechowe

South Africa is brimmed with the excitement and joy of World Cup and if you want to be a core fan of any team then it is time to know about the best teams. I would prefer Spain due to many reasons which will convince you also.
http://rosie.besaba.com/alfamart-official-partner-merchandise-piala-duni...
http://maskodoq.blogspot.com/2013/07/CiptoJunaedy.html
http://maskodoq.blogspot.com/2014/03/unit-link-terbaik-di-indonesia.html
http://etnisjawa.blogspot.com/2013/08/apakah-cipto-junaedy-bohong.html
http://rosie.besaba.com/situs-online-terbaik-terpercaya/

Austrian financial crisis, with only a sliver of their fortune remaining. Hedy reinvested some money in stocks, but everything went to shit. http://inwest-bud.org.pl/

with only a sliver of their fortune remaining. Hedy reinvested some money in stocks, but everything went to shit. http://www.blachyperforowane.net/

https://rebelmouse.com
Thanks for the post and great tips..even I also think that hard work is the most important aspect of getting success.

http://mahirseogoogle.blogspot.com/2014/06/adro.html ADRO TEXTILE Konveksi Murah Indonesia – Tlp 081362666444 ! # http://clorot.blogspot.com/2014/04/kursus.html Kursus SEO dan Internet Marketing Terbaik di Jakarta

We could not have asked for more in this post. You have given us what we all were curious to know. Wish you all the luck.

http://cityofgolf.wordpress.com

What a amazing article! I think I have just read one of the best posts in the world today. And I would like to thank the world's best writer for giving me that. Thanks, man! http://workingmomreviews.com/make-him-desire-you-review-what-you-need-to...

Garcinia is a word you will hear more and more often if you are interested in the weight loss industry. Garcinia Cambogia is used in popular supplements for weight loss and many people have experienced good results when taking Garcinia health products. http://2012monclerjacketsuk.com

for weight loss and many people have experienced good results when taking Garcinia health products.Target Visa Login

Swipe fees are the fees stores pay to accept credit and debit cards. The fees are generally passed along to all customers, even cash customers. Numerous courts have found that Visa and Mastercard use abusive market power to force merchants to accept their highest in the world, non-negotiable swipe fees. Since the market wasn't working, Congress stepped in and ordered the Fed to write a rule lowering anti-competitive swipe fees.
http://etnisjawa.blogspot.com/2014/07/gudang-situs-online-terbaik-terper...
http://etnisjawa.blogspot.com/2014/07/agen-texas-dan-domino-online-indon...
http://rosie.besaba.com/pokrstar88/
http://rosie.besaba.com/cipto-junaedy-dan-karyanya/
http://dirosie.com/800/singgasana-hotels-resorts-pilihan-akomodasi-terba...
http://vacationsbythebeach.com/gudang
http://rosie.besaba.com/pokrstar88/
http://dirosie.com/800/singgasana-hotels-resorts-pilihan-akomodasi-terba...

You're so cool! I don't think I've read anything like this before. So good to find somebody with some original thoughts on this subject. Thanks for starting this up.http://owncloud.com

Thank you very much for a very useful article. Best foredi of luck always to the author.

The fees are generally passed along to all customers, even cash customers. Numerou letting agents penzance

the info that you wrote this I am very interested once the pack so I would like to see the traces of his and died here. greetings by toko obat kuat, alat bantu sex, alat sex pria dan alat bantu sex wanita.

I have just read one of the best posts in the world today. And I would like to thank the world's best writer for giving me that. https://rebelmouse.com/selfsufficiencyshortcutsreview/

umerous courts have found that Visa and Mastercard use abusive market power to force merc here's a good desire system review

I like this post,And I guess that having fun to read this post,they shall take a good site to make a information,thanks for sharing it to me.
i want my ex back really bad

I recently came across your blog have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
https://www.rebelmouse.com/girlfriendactivationreview/

know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often. buy instagram likes

This is highly informatics, crisp and clear. I think that everything has been described in systematic manner so that reader could get maximum information and learn many things.
www.RebelMouse.com

Just admiring your work and wondering how you managed this blog so well. It’s so remarkable that I can't afford to not go through this valuable information whenever I surf the internet!
ultimate herpes protocol amazon

I’ve been surfing online more than three hours today, yet I never found any interesting article like yours. It’s pretty worth enough for me. In my opinion, if all webmasters and bloggers made good content as you did, the web will be a lot more useful than ever before.
bobby rio key lock sequence video review

Wonderful article, thanks for putting this together! This is obviously one great post. Thanks for the valuable information and insights you have so provided here.
https://rebelmouse.com/60secondpanicsolutionreviews/

This is a great inspiring article.I am pretty much pleased with your good work.You put really very helpful information...
https://www.rebelmouse.com/textyourexback2review/

Thanks for sharing the info, keep up the good work going.... I really enjoyed exploring your site. good resource...
i need to get my ex back

Excellent information on your blog, thank you for taking the time to share with us. Amazing insight you have on this, it's nice to find a website that details so much information about different artists.
reverse diabetes today method review

Thank you for helping people get the information they need. Great stuff as usual. Keep up the great work!!!
NeoLife Shake painonhallinta

it was a wonderful chance to visit kind of site and I am happy to know. thank you so much for giving us a chance to have this opportunity..
http://slideshare.net/gfasreviews/gfas-review-girlfriend-activation-system-obsession-story || https://rebelmouse.com/tinnitusremedyreviews/

I think we could be seeing a range of factors at play including how gay men are perceiving risk and balancing that against pleasure, the impact of increased HIV testing, and the ongoing challenge of maintaining a safe sex culture after 30 years of HIV.’ whiteboards

Very fine enter. I right stumbled against your blog also wanted to speak that I experience indeed enjoyed browsing your blog announces. acknowledges for sharing. how to buy instagram followers

It’s interesting, compelling content. Your views are much like my own concerning this subject. backlinks service

Swipe fees are the fees stores pay to accept credit and debit cards. The fees are generally passed along to all customers, even cash customers. Numerous courts have found that Visa and Mastercard use abusive market power to force merchants to accept their highest in the world, non-negotiable swipe fees. Blue Waffle Disease

Since the market wasn't working, Congress stepped in and ordered the Fed to write a rule lowering anti-competitive swipe fees.LG TVs

Wow i can say that this is another great article as expected of this blog.Bookmarked this site..
click here

Thanks for your insight for your fantastic posting. I’m glad I have taken the time to see this.
how to conquer anxiety

I really enjoyed reading this post, big fan. Keep up the good work andplease tell me when can you publish more articles or where can I read more on the subject?
is the Truth About Cellulite the right option for you

Positive site, where did u come up with the information on this posting?I have read a few of the articles on your website now, and I really like your style. Thanks a million and please keep up the effective work.
help me get the fat off my stomach

accept credit and debit cards. The fees are generally passed along to all customers, even cas air ambulance service

This is a truly good site post. Not too many people would actually, the way you just did. I am really impressed that there is so much information about this subject that have been uncovered and you’ve done your best, with so much class. If wanted to know more about green smoke reviews, than by all means come in and check our stuff.
click here

Impressive web site, Distinguished feedback that I can tackle. Im moving forward and may apply to my current job as a pet sitter, which is very enjoyable, but I need to additional expand. Regards.
twitter followers

Pages

Priority Action

The overuse of antibiotics on factory farms is threatening the effectiveness of lifesaving antibiotics. Call on the Obama administration to put an end to the worst practices.

Support Us

Your donation supports U.S. PIRG’s work to stand up for consumers on the issues that matter, especially when powerful interests are blocking progress.

Consumer Alerts

Join our network and stay up to date on our campaigns, get important consumer updates and take action on critical issues.