The payment processing and card industry is one rife with guidelines and regulations. While a majority of the conversation lately has been dominated by security, a recent ruling from the U.S. Supreme Court is moving the topic of the discussion to one about fees.
According to Reuters, this week the U.S. Supreme Court rejected an appeal made by the retailers in regard to the Federal Reserve's controversial rule for debit card swipe fees. As it continues to stand, merchants must pay banks every time customers uses a debit card to purchases products or services. The original rule capped the swipe fees at 21 cents, but retailers think that is still too high.
"The original rule capped the swipe fees at 21 cents, but retailers think that is still too high."
Also known as interchange fees, they are set by Visa, Mastercard and other major payment card networks in order to cover charges that many banks face when processing payments, such as the cost of network hardware and software, fraud monitoring and labor.
The source reported that before the intervention of Congress, swipe fees were as high as 44 cents per transaction thanks to the 2010 Dodd-Frank financial-reform law. However, this law was considered by the appeals panel to be confusing and structurally convoluted. So, in 2011, the Fed, by way of Congress, put a 21 cent per transaction cap on those fees. Then, in 2013, a U.S. district court agreed with a plea from retailers that these charges should be lower. Unfortunately for merchants, this appeal was rejected.
The impact of the recent decision will be felt by retailers and banks as well as consumers. Bloomberg reported that with 21 cent per transaction swipe fees, banks will lose around $8 billion annually. Additionally, Wal-Mart Stores told the source that it alone handled 43 billion debit card transactions in 2014. That means the corporation is reducing its revenue by approximately $630 million due to the ruling.
Law360 reported that many retailers cited swipe fees as one of their highest costs, causing a large portion of those merchants to pass on the costs to customers. The National Retail Federation, a group comprised of Wal-Mart, the National Restaurant Association and JCPenney to name a few of its members, told the source that debit card swipe fees cost the average U.S. household around $400 annually, which obviously impacts future spending.
Stirring up controversy
Of course, there are many opinions from each side of the debate. Richard Hunt, head of the Consumer Bankers Association explained to Reuters that the Supreme Court's rejection suggested that reason has prevailed. According to Hunt, the effects of reduced swipe fees as of the 2011 decision have yet to be seen, as retailers haven't passed the savings on to consumers, which is what the argument should be about.
"Make no mistake about it – consumers must come first in this process, not the bottom-line of retailers," said Hunt, according to Reuters. "This drawn-out fight should put on notice those members of Congress who insist upon interfering with the free market."
Bloomberg reported that the Obama administration also supports the rule, stating that any line drawn between variable and fixed costs would be unworkable anyway. Congress can always amend the 21-cent swipe fee cap if the economy demands it, which positions the ruling as a smart decision for the Supreme Court.
Retailers still feel strongly about swipe fees. It is fairly obvious they are certainly unfair, but unless merchants demonstrate the effects of the rule by passing savings down to the average consumer, Congress will continue to side with the banks.
Perhaps it's debit card payment processing that needs to become less expensive. If that change occurs, banks, retailers and consumers would see some benefits.
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