A new study by the Richmond Federal Reserve shows the Fed made mistakes when it tried to implement reforms to make the market for debit-card fees competitive.
“The Richmond Fed report should be a wake-up call for the Federal Reserve,” said Lyle Beckwith, senior vice president of government relations for NACS, the National Association of Convenience Stores, a member of the Merchants Payments Coalition.
“Ninety percent of merchants having their fees stay the same or go up makes no sense when Congress recognized that the price-fixed fees were too high already.”
Under the Durbin Amendment to the Dodd-Frank financial reform bill, Congress required the Federal Reserve to impose rules to make this market more competitive and exorbitant fees more reasonable.
But the Fed bowed to heavy pressure from the big banks and introduced only half-measures. For instance, it doubled its own original estimate of a fair fee on a debit transaction. For some small transactions, the fees went up, too.
According to figures the banks themselves report to the Fed, they still earn a 500-percent profit on these fees, which they charge merchants every time a customer swipes a debit card to pay for something.
These fees – set by MasterCard and Visa for their member banks so the banks don’t have to compete – raise prices for consumers, hurt small retailers and slow the entire economy.
The Fed’s rules have failed to create the result Congress intended: A fair, competitive market that looks like the rest of our free-market system.
The Merchants Payments Coalition includes retailers, restaurants, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses fighting unfair credit card fees and advocating a more competitive and transparent system that works for consumers and merchants. The coalition’s member associations represent 2.7 million stores with 50 million employees.