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ALEXANDRIA, Va. -- Two years since debit card swipe fee reform went into effect, a new report indicates that the rules gave a much-needed boost to the U.S. economy in 2012, as anticipated by Congress when it passed the reform legislation in 2010.
According to the report released by the Merchants Payments Coalition (MPC), reducing debit card swipe fees led to a savings of $5.8 million for consumers through lower prices. This, in turn, led to increased spending and helped create 37,501 new jobs.
The MPC is fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition's member associations collectively represent about 2.7 million stores with approximately 50 million employees. NACS, the Association for Convenience & Fuel Retailing, is a founding member.
"It turns out that the Main Street merchants, consumer groups and members of Congress that all pushed for debit reform were right," said Lyle Beckwith, senior vice president of NACS. "The Durbin Amendment has been a victory for both consumers and hundreds of thousands of American businesses."
The MPC study was conducted by Robert Shapiro of Sonecon LLC. Shapiro is an economist and advisor to presidents, prime ministers and Fortune 100 companies. The study examined the debit card swipe fee reform required under the Dodd-Frank Wall Street Reform and Consumer Act. The news rules under the Durbin Amendment went into effect Oct. 1, 2011, exactly two years ago today.
The report findings include:
- When debit swipe reform went into effect in October 2011, the average debit swipe fee on cards from covered banks dropped from 48 cents to 24 cents per transaction, saving consumers $5.8 billion in lower costs for goods and services and saving merchant businesses $2.6 billion in 2012. The savings, in turn, supported 37,501 new jobs.
- These savings and job gains, however, could have been substantially larger had the fee been cut to 12 cents as originally recommended by the Federal Reserve. If that cut had been implemented, an additional $2.79 billion would have been generated in consumer savings plus $1.2 billion in merchant savings, and 17,824 more jobs would have been created.
- If swipe fees for all credit card transactions had been held to the same level as debit fees in 2012, consumers would have saved an additional $15.4 billion and merchants would have saved another $6.9 billion, which would have supported 98,600 new jobs.
- With both debit and credit reform in place, consumers and merchants would have realized total annual savings of $34.9 billion, creating a total of 153,976 jobs every year.
"Putting an end to the great swipe fee ripoff will make a significant dent in unemployment at a time when every job counts," said Dave Carpenter, NACS chairman and CEO of J.D. Carpenter Cos. Inc. "In addition, small business owners, who historically have been the primary drivers of job creation in the U.S., will also have more cash on hand to invest in their stores and new hires. Without reform, these swipe fees will continue to drain consumer and merchant spending power and ultimately will slow down a full economic recovery.”
The study also showed that if Visa Inc. and MasterCard Inc. had not increased debit card swipe fees on small purchases, consumers would have saved another $690 million in 2012, supporting an additional 3,044 jobs.
On July 30, U.S. District Judge Richard Leon struck down the swipe fee rules. In his ruling, the judge said the Fed disregarded Congress' intent when it decided how much banks can charge retailers to process debit card transactions. As part of the decision, the Fed was instructed to rewrite the rules governing swipe fees. The current rules, in part, include a 21-cent cap.
The Federal Reserve is appealing the ruling in U.S. Circuit Court. The existing rules will remain in place until a decision is reached, as CSNews Online previously reported.
MPC also has released state-by-state numbers for consumer savings and jobs with swipe fees reduced to 24 cents for both debit and credit cards and to 12 cents for debit cards. MPC took the findings in Shapiro's report and distributed them proportionally to all 50 states' share of the U.S. gross domestic product.
Credit card swipe fees, which can be as high as 4 percent of the transaction, are now the second-highest operating expense for merchants, after labor.
"This is clear evidence that retailers have seen significant savings from swipe fee reform and that they're sharing that savings with their customers in a variety of ways," said Mallory Duncan, senior vice president and general counsel for the National Retail Federation (NRF). "That's a huge improvement over where we were before reform, and both consumers and the economy are better off. But the savings could have been far greater for retailers and consumers alike if the Federal Reserve had capped debit swipe fees at the level intended by Congress. The fight to bring swipe fees under control is far from over."
NRF is also a founding member of MPC.