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live local. live small. Credit card fees and how it affects merchants Courtesy photo
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ast week the senate voted on a
proposal amendment that would delay the implementation of part of the Dodd-Frank financial overhaul bill from last year. This particular amendment hoped to eventually kill altogether the lowering of debit card swipe fees. Those who are unaware, every time “plastic” pays for a purchase, the merchant pays the credit card company a percentage of the purchase. They also pay monthly fees: for the privilege of processing cards, for the equipment and supplies (paper, ink, etc.). It all adds up, which is why many small businesses have minimums for debit and credit card purchases. For our little bookstore, when adding it all together, plus the cost of inventory, we honestly cannot afford to spend the nearly $3 it would cost to charge a $1 book. The Dodd-Frank Act is a complicated piece of legislation that tackled several aspects of financial regulation, and, among its 16 specific titles (or sections), was the creation of the Bureau of Consumer Financial Protection. (Now your credit card company cannot just randomly decide to triple your interest rate, for example.) Another aspect of the legislation was to lower and cap the swipe fees charged during debit card transactions. (This is for debit, access to money you already have—not credit, the act of borrowing money.) Many businesses prefer for people to use debit when paying with plastic, because they pay a flat fee for the transaction, instead that which includes a percentage of the transaction for credit. (Discover: “The card that pays you back” is much disliked by small businesses, because the credit card company charges merchants higher processing fees in order
encore | june 15-21, 2011 | www.encorepub.com
to pay the card holders back.) So every time a consumer uses a card, a “swipe fee” is incurred. The L. A. Times cites $0.44 as the current national average for the fee per transaction. I will go ahead and disclose that we pay $0.50 per debit swipe to our bank, so we are above the national average. Under the Dodd-Frank Act, the fee would be lowered and capped nationally at $0.12. According to the Seattle Times, last year those fees alone generated in excess of $20 billion! Remember, we bailed out the banks with our tax dollars (to which they then gave themselves nice bonuses); but it seems we gave them over $20 billion willingly through plastic processing. And that does not include the money collected on interest payments from using credit cards. Very small banks, with less than $10 billion in assets, are exempt from the cap. Last year we ran a piece on community banking and the “move your money” movement to move money away from the big banks into small community banks and credit unions. We compiled a comparison chart which looked at the services offered by Bank of America, First Citizens, State Employees Credit Union and First Bank (which purchased Cooperative). To put this in perspective, as of last fall when we ran that piece, Bank of America came out with $2,366,086,945 while First Bank—a small regional bank—had $33 billion in assets. The amendment voted upon in the Senate last week was introduced by Sen. Jon Tester (Dem - Montana). It sought specifically to delay the implementation of the cap. In order for a bill to pass the Senate and go to the House to be voted upon, it must pass with at least 60 votes supporting it. This amendment only
garnered 54 votes in support and therefore will not go to the House for voting. Sen. Dick Durbin (Dem. - Illinois), the current Senate Majority Whip, led the opposition to the amendment. It is interesting that this was a battle between two politicians from the same party, not a Republican vs. Democrat argument. Tester claimed the amendment was proposed to protect small, rural community banks, which would not be able to handle the lower fees. But since small banks with less than $10 billion in assets are exempt, that argument doesn’t seem to hold up. Of our two senators from North Carolina, Hagen (Dem) voted with Tester and the banks, and Burr (Rep) voted with Durbin and small business. Hagen changed her position from a year ago when she voted for the Dodd-Frank Act. So what happens with the more than $0.30 of the transaction fee that stays here instead of going to Bank of America and Citigroup? Well, for our part, we will lower our request for a minimum purchase to use a debit card. I hope other businesses will do the same. We have never been hardline about it; we just ask people to try to get “in the neighborhood” and explain that, with the fees and percentage structure, at a certain point we would be paying the bank for the privilege of giving them that book. Most people understand. The money that is saved from the processing fees can go into hiring additional help for many businesses, in the end putting more people back to work. Can it really be that much? $700 to $1,000 a year not spent on swipe fees can definitely hire part-time and seasonal help. Most importantly, it is literally billions of dollars each year that can be invested in the communities that need it, instead of lining the pockets of Wall Street.