Opinions Today: Legislation to Reduce Credit Card Fees -- a Big Mistake or Purposeful Slight of Hand?
By Robert Day
Was this a "cover up" or a "screw up?" Our government - with the passage by Congress of the Durbin Act on October 1st - came up with a game plan to help merchants hold onto their profits, while at the same time penalizing the banks. The Durbin Act caps interchange fees, which are what financial institutions can charge merchants for running purchases made with debit or credit cards. Legislation like this might make some feel good: It's about time the government protects the everyday Joe and puts the big banks in their place! The only problem is, there is a severe flaw in the plan touted, as many merchants never actually see the reduction in fees as the banks are able to simply keep them anyway.
The plan was to make a law forcing Visa and MasterCard to lower their debit interchange fees. These fees are collected from creditors ("merchants"), and are kept by the banks that issue the credit cards used in purchases. On the surface, this means banks will lose millions in income from the reduced interchange fees. But not so fast! The law only states that the interchange fee has to be lowered to the processor. There's nothing in the amendment that states the processor has to pass the savings on to the merchant. Keep in mind the largest market share of processing is done by banks, so the money just left the credit card issuing side of the bank only to be put back to the credit card processing side of the bank.
You might say this was just a mistake, an oversight! But if you consider that Senators and Congressman only get paid $174,000 a year to vote on behalf of small to midsized businesses, yet when they sit on the Financial Services Committee (or what the Huffington Post refers to as the Cash Committee) they receive millions per year - in the form of campaign contributions - to vote in the interest of the big banks. According to openSecrets.org the Finance/Insurance/Real Estate industry paid just under $10 million to the Financial Services Committee to vote for their interests. And if the big campaign contributions weren't enough, the commercial banks have over 400 lobbyists wining and dining the Financial Service Committee to ensure votes go their way. So the question remains, is this a "cover up" or a "screw up?" If you've ever seen the movie Oceans 11, you might remember the scene where George Clooney gets beat up by this big guy brought in by the bad guys to rough him up. The catch is, George was ready for him because he had already bought him off! The big guy was - unbeknowst to the bad guys - on George's payroll so all he had to do was make it look like he was getting the beating of a lifetime! After all, the casino owner was not happy and wanted justice, just like the American people today. They are angry that, while common everyday working people are losing their jobs, homes etc., big bank CEO's are making tens of millions of dollars a year in bonuses from taxpayers' bailout money. They want retribution; they want the banks to hurt too, they want the government to step up and put the banks in their place! So did they? Or is this just all an act to pacify the people.
 What can you do? Get with your credit card processor and have them show you on your statements where they are passing these savings back to you.
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Let's recap...
- The amendment says the banks will get a lower interchange fee, causing them to lose millions
- The amendment allows the banks to not have to pass the savings on to the merchant allowing them to keeping the very profits they lost!
- Basically, the banks won't lose one dime! (Other than the millions they pay out in campaign contributions and to lobbyists!)
So, is it worth your time to investigate if your processor is pocketing the difference? If your invoices are average just $300, let's say, the new fees would only be 27 cents versus $3.30. If you are accepting credit cards for 300 such transactions a month, not getting the new debit pricing would cost you over $900 a month or just under $11,000 a year. Here's a quick estimator: the new fees should save you $1.00 for every $100 processed. What can you do? Get with your credit card processor and have them show you on your statements where they are passing these savings back to you. The old debit pricing was:
- Swiped Visa debit .95% with a $0.20 Transaction Fee. If keyed, the rate goes to 1.60%
- Swiped MasterCard debit 1.05% and $0.15 Transaction Fee. If keyed, the rate goes to 1.64%
- Pin entered debit prices varies by Pin Network with an average of $0.50 total transaction cost
The new debit pricing:
- .05% with a $0.21 - $0.22 transaction fee
Note: This amendment only applies to Debit Cards issued by banks with over 10 Billion in assets. It excludes Debit Cards issued by little home town banks and or Credit Unions which make up a very small market share. Robert Day is Managing Partner, Merchant Relief Council.
http://merchantreliefcouncil.org/
He can be reached at: robert@mrcworldwide.org or 800 MRC-1292. CLICK HERE to signup today for our upcoming webinar entitled "Credit Card Processing - The Illusion of a Good Deal
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