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041311 SwipeFees
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USA Today editorial: In 'swipe fees' fight, retailers make better case

Every time you use a debit or credit card, you shell out an invisible sales tax in the range of 1% to 3%. That's how much retailers have to pay the banks that issue the plastic.

These anticompetitive charges — known as interchange, or swipe, fees — add up. In 2008 retailers paid $48 billion, which they passed on in form of higher prices. That's an average of $427 per household.

For many years, retailers have argued that these fees are too high but, for the most part, their pleas fell on deaf ears. Then, the 2008 financial crisis soured Washington on banks, giving retailers an opening to win a provision in the financial reform law that limits fees on debit cards and allows stores to rebate the savings to their customers. The Federal Reserve has tentatively set the fees at 7 cents to 12 cents per transaction, down from the current average of 44 cents.

Now the banks, facing billions in lost revenue, are fighting back. They are prodding Congress to delay, and ultimately kill, the measure, set to go into effect in July. A two-year delay, championed by Sen. John Tester, D-Mont., is circulating in the Senate.

This might all look like a typical inside-the-Beltway donnybrook, pitting big banks against big-box retailers. But contained in it are important issues of how much consumers are forced to pay on what they buy. In our view, Congress was right to go after debit card swipe fees, even if it went about it in the wrong way.

The obvious, and counter-intuitively pro-consumer, solution would have been to allow retailers to pass on the swipe fees to their customers directly as line items on their bills. Once consumers saw the fees, instead of having them hidden in the cost of what they buy, they would rebel against them.

They would demand a cheap and efficient way to spend their money without having to support a $48 billion industry of middlemen. In so doing, they would both drive down prices and create what doesn't exist now — an actual marketplace for credit and debit card branding.

Instead, Congress chose to limit debit card swipe fees on the grounds that these transactions, particularly if completed with the entry of a pin number, cost banks virtually nothing. The politics here are simple. What lawmaker wants to be in favor higher fees?
It's true that the benefits of lower swipe fees — slightly lower prices at the register — are likely to be less visible than the higher charges banks will impose on other services in a bid to recoup their losses. And Congress' approach of limiting debit card fees does raise the question of whether government should be setting prices.

If a vibrant market for card services existed, the answer would be no. But the competition is limited. Visa and MasterCard, which set the swipe fees, were owned by the banking industry until they were spun off as free-standing companies. As a debit-card duopoly, they have leverage over retailers. Congress is not so much regulating an industry as it is policing a cartel. Though there might be better ways of addressing swipe fees, it should not abandon the effort.

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Wyoming Retail Association (WRA)
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