Monday, February 14, 2011

Banks using empty scare tactics to thwart credit card reform, study says

U.S. retailers may add new stores, hire workers and fast-start capital improvement plans if the Federal Reserve imposes proposed debit-card “swipe” fee caps, according to a survey conducted by a retail trade consulting firm.


The caps, required by the Dodd-Frank Act, are “energizing” retailers and small business owners, according to the study.  An exemption for small banks won’t keep retailers from passing its positive effects along to consumers, and on plans to reinvest savings into new jobs, new stores, and expansion plans.


To back up its case, the retailing group released results of a survey today highlighting steps it says retailers will take in response to the new rule. Of the retailers surveyed, 93 percent said they would be adding new stores, hiring workers or reinvest savings into store remodeling and other capital projects. Another 50 percent said they would reduces prices on big ticket purchases normally paid for by customers using a debit card.


The Fed is proposing that the big credit card banks cap debit interchange fees charged to merchants at 12 cents for each transaction, replacing a formula that averages about 2 percent of the purchase price. The new rule must be completed by April 21 and in effect by July 21 to comply the new bank fee regulations.

Retails are turning their attention to Credit-card interchange fees, which average about 3 percent for most small business owners.


Unified Support


The National Retail Associations, which represents over 300,000 small business owners have spent more than ten years fighting powerful banking lobbies to make changes to the “old rules” followed by the big banks and credit card companies.


“It’s our sincere hope that Congress takes the steps necessary to save both consumers and small business owners the billions in overcharges and secret rules,” Nason Lotikra, a small business owner from Washington, said of the survey results.


Washington-based banking lobbyist groups are among the top contributors to members of Congress, spending more than $4.5 million in 2010 as lawmakers debated Dodd-Frank financial legislation, according to the Center for Responsive Politics.


Some of  the banks’ top executives have gone directly to Fed Chairman Ben S. Bernanke, to attempt him to withdraw the central bank’s proposal to cap swipe fees.


‘Extremely Beneficial’


“If enacted as proposed, the results would be extremely beneficial to consumers, small business owners and merchants of all sizes,” the retail trade groups have determined.


Fee limits proposed by the central bank will save small businesses and consumers more than $12 billion. 


Visa Inc. and MasterCard Inc., which set the fees and pass the money to card- issuing banks, tumbled more than 10 percent after the proposed rules were made public on Dec. 16, amid investor concern that the caps will damage their business model.


“Regardless of the size, from the largest electronics store to the smallest corner grocer, debit-card customers will save money, have more places to use their cards, and enjoy greater convenience.” said Herschel Wexman, a retailer who says over fifty percent of his gross profits go to pay the credit card companies.


Senator Richard Durbin, the Illinois lawmaker who crafted the provision and the exemption for smaller lenders, has criticized Washington trade groups such as the ICBA and the Credit Union National Association for trying to scare members.


“These associations have expended so much time and money lobbying against reform over the past year that unfortunately I do not expect them to ever reconsider their position,” Durbin wrote in a recent letter to the Illinois Bankers Association, Illinois Credit Union League and the Community Bankers Association of Illinois.

Durbin, the second-ranked Democrat in the Senate, has said he will work to stop any legislative effort to change the provisions. In a letter to the American Bankers Association,


Durbin said he would “vigorously oppose efforts to block the implementation of this needed reform.  Congress has now recognized that interchange reform is necessary and has passed a reform law that should be given time to work,” Durbin wrote to the Washington-based trade group.

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