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ARLINGTON, Va. -- In a letter addressed to all members of the U.S. Senate, 133 trade associations endorsed an amendment (S. Amdt. 3932) to the Restoring American Financial Stability Act of 2010 sponsored by Senate Majority Whip Richard Durbin (D-Ill.) that will address excessive debit card swipe fees and the anti-competitive practices of credit card companies and the big banks that issue their cards.
The amendment would prevent credit card companies from prohibiting merchants from offering discounts when customers use less expensive forms of payment. The amendment would also direct the Federal Reserve to issue regulations to ensure that swipe fees imposed on debit card transactions are "reasonable and proportional" to the cost incurred in processing the transaction., according to the Retail Industry Leaders Association (RILA).
The amendment was endorsed by retailers even though it exempts all banks, credit unions and thrifts with assets of less than $1 billon, or 92 percent of all banks, 98 percent of all credit unions, and 86 percent of all thrifts. However, retail groups pointed out that more than 80 percent of all interchange fees are collected by the 10 largest banks, which are not exempted.
For example, NACS, one of the national retail organizations to co-sign the letter, said it is fine with the small bank exemption "as it was added to the amendment to satisfy senators concerned about their community bankers and small credit unions. More than 80 percent of cards are issued by the 10 largest banks, so the vast majority of transactions will be covered by this amendment." NACS also called on its members to contact both their senators and ask for their support for the Durbin amendment.
The letter, signed by 57 national associations and 77 state trade association, reads, in part:
"Despite Congress' efforts to reign in abusive practices, credit card companies continue to take advantage of a major loophole in financial regulation. In fact, they announced interchange rate increases just months after the passage of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (Credit CARD Act), effectively circumventing many of the reforms instituted by Congress. More recently, Visa Europe announced last month that it was voluntarily dropping debit card interchange fees to 0.2 percent in Europe, a decrease of 60 percent, while earlier in the month Visa increased rates on similar transactions in the United States by some 30 percent. Quite literally, at a rate of approximately 2.0 percent on debit card interchange fees, which is 10 times higher in the United States, American businesses are subsidizing European transactions.
"Simple, common-sense reforms are needed to correct this market imbalance, which would give our organizations' members additional tools to manage our costs related to interchange fees. First, the amendment would give the Federal Reserve the authority to conduct an open and fair rulemaking -- without prescribing an outcome -- in order to develop regulations to ensure that interchange fees imposed on debit card transactions be 'reasonable and proportional' to the cost incurred in processing the transaction. Debit transactions are not an extension of credit and are directly drawn from a consumer's checking account, yet the interchange rate on debit transactions continues to increase. Small banks, credit unions and thrifts with assets of under $1 billion would be carved-out from these rules, meaning that 92 percent of all banks, 98 percent of all credit unions, and 86 percent of all thrifts would be exempt, allowing them to continue to receive the same interchange fees they receive today.
"Second, the amendment would prohibit anti-competitive restrictions on discounts and the setting of minimum transaction levels, providing entities with the freedom to choose their preferred method of payment. Under current rules, any business, charity or government agency that accepts credit or debit cards is prohibited from setting a minimum transaction level, such as $3, even though the entity may actually lose money on the transaction because of slim profit margins. Visa and MasterCard can and do impose fines on small businesses up to $5,000 per day for such offenses, which has the effect of ensuring that the card companies and big banks turn a profit even if the small business loses money on the transaction. In addition, the amendment allows businesses to incentivize the use of one card network over another (e.g., a discount may be provided for Discover cards if they carry a lower interchange rate) and allows businesses to offer discounts on certain forms of payment (e.g., a discount may be offered for cash, check, PIN debit, etc., all of which carry lower rates than credit cards). This amendment would not enable merchants to discriminate against debit cards issued by small banks and credit unions. Visa and MasterCard require merchants to accept all cards within their networks, and this amendment does not change that requirement."
In the last year, small business owners have gathered nearly 4 million petition signatures from their customers and delivered them to members of Congress, calling on them to reform these unfair fees.
In addition to the Retail Industry Leaders Association and NACS, other organizations signing the letter included International Franchise Association, National Grocers Association, National Restaurant Association, Arkansas Hospitality Association, Louisiana Restaurant Association, Retail Council of New York State, and the Wyoming Lodging and Restaurant Association.
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