An article in the “You’re The Boss blog alerted me to an amendment to the Senate Financial Reform Bill proposed by Senator Durbin of Illinois “that would loosen the hold credit card networks such as Visa and Mastercard now have over merchants. Senate leaders are expected to bring the amendment up for a vote — an important milestone, because in major bills, most amendments never get this far.”
Evidently, support for such an amendment has been building for some time. A report entitled Credit Cards: Rising Interchange Fees Have Increased Costs for Merchants, but Options for Reducing Fees Pose Challenges issued by the U.S. Government Accountability Office released last fall stated that “The level and growth of these (merchant processing fees) …have become increasingly controversial.”
Mastercard and Visa have been accused of having a monopoly on this market, and small businesses, mostly retailers and restaurants, have been held hostage to fees out of proportion to the amounts of the transactions.
The post also cited an article by columnist Andrew Martin, who charted the growth of merchant processing fees in January “…the growth of swipe fees on debit card transactions, which have become a profit center for banks large and small. When customers sign for a debit card transaction, a merchant pays on average 75 cents for every $100 in purchases. A Visa official told Mr. Martin that the fees are “not a cost-based calculation, but a value-based calculation” — based, that is, on what the market will bear.”
Merchant processing fees are actually a combination of charges leveled by the credit card processors and the banks.
Under the amendment to the Senate Financial Reform Bill, the Federal Reserve would be given the power to reduce merchant processing fees on debit cards to a “reasonable” rate, that would be in proportion to the amount of the transaction on the processing side. And, it would seek to create a competitive environment for the fees charged at the bank level.
An interesting sidebar: The NFIB (National Association of Independent Businesses) and the U.S. Chamber of Commerce, who you would hope would rally support for the amendment, did not join over 100 other trade organizations in signing a letter of support.
Susan Martin, Small business financial management
Addendum to the above:
This just in, thanks to Anne Fisher on the Crains NY blog: “Want to join the fight against unreasonable fees and restrictions? Contact your congressperson and voice your support for the Durbin Amendment, #3932. You can also sign on with a nationwide movement aimed at taming the credit card companies, the Merchants Payments Coalition.”
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