The battle over new rules limiting the fees banks can charge to process debit card transactions is heating up as grocery store owners continue to push for a July 21 date for the rules to take effect while opponents try to block the measure.
More than 200 grocers met in Washington, D.C., last week to urge lawmakers to implement the rules included in the Dodd-Frank Wall Street Reform and Consumer Protection Act passed by Congress last year. The law requires the Fed to adopt rules to limit “swipe fees” merchants pay to banks in exchange for accepting debit cards. The Fed proposed capping the fees, known as interchange fees, to 12 cents per transaction. The current fee averages about 44 cents per transaction.
The Federal Reserve said it would miss the April 21 deadline to complete the rules because it had been swamped by more than 11,000 comments. The Fed emphasized, however, that it would be able to finish its work before the new rules take effect July 21.
In response to the Fed’s statement, bill co-author Rep. Barney Frank, D-Mass., announced last week he would support delaying the rules. “The Federal’s Reserve’s announcement that they cannot meet the deadline on interchange fees confirms my view that this is the only part of the financial reform bill that needs to be amended,” Frank said in a statement. “For this reason, I support legislative action to postpone the deadline so we can revisit it.”
U.S. debit card transactions have climbed from $8 billion in 2000 to $38 billion in 2009, and the cards have surpassed checks and credit cards as the most frequently used noncash means of payment, according to the Fed. Debit card fees exceeded $16 billion in 2009.
The financial industry calls the swipe-fee provision government price-fixing.
But supporters of the new rules say debit card fees are unpredictable and have continued to increase and that the cost of accepting debit cards is among the fastest-growing expenses for small businesses.
“Grocery stores make an average profit of less than 2 cents on the dollar,” said Leslie G. Sarasin, president and CEO of the Food Marketing Institute. “The banks make more money per transaction from swipe fees than what the store will make in profit.”
Independent retailers hit hard by fees
Jennifer Hatcher, senior vice president government and public affairs at FMI, said independent retailers are particularly hurt by the fees. “These folks have the most to win and are getting hit the hardest,” she said. “This is a big check-accepting industry. But fewer and fewer people are walking around with their checkbooks.”
Hatcher said she is baffled by Frank’s turnaround on the issue. “I don’t know how to read his statement.” But she said Fed officials have assured her “they will finalize the rule in plenty of time to meet the July 21 deadline. We haven’t heard anything to the contrary.”
Kemper Isely, co-president of the Lakewood, Colo.-based Natural Grocers chain, said fees continue to rise as more customers use debit and credit cards for purchases. The company used to try to discourage its customers from using debit and credit cards because of the fees. “People who want to use the debit function choose that function when they check out. But most customers have affinity cards, and they want to earn their miles or rebates so they use their cards as credit cards,” Isely said. “So overall it is a losing battle to get people to use the debit option which is less expensive than a credit option."
Isely added, “The interchange fees keep going up so the cost of each credit card transaction keeps going up, which means it keeps on costing us more to accept credit cards. Margins definitely are not going up.”
Corinne Shindelar, CEO of the Natural Food Retailers Association, agreed that fees for credit cards are also a factor. “A lot of people don’t realize that cash rebates and points are part of the fee factor, and that’s paid for by the retailer. You have to provide that service to consumers. So either your margins erode further or you pass it along to consumers, and lately, I’m seeing more margins (eroding).”