Consumer savings to vanish If Congress pulls the plug on reforms for debit cards

The Hill

March 16,  2017

By JayRicker

Six years ago, Congress saved consumers billions of dollars a year by introducing good old-fashioned competition to a business consumers rarely see but that drives up the price of every single thing they buy. This reform saved Americans $6 billion in the first year alone, says a noted economist, not to mention supporting more than 37,000 jobs.

So why are some members of Congress talking about returning to the bad old days of price-fixing fees, squashing competitors and higher prices? Because the big banks want those billions of savings back in their own coffers, not in your pocket.

Retail is the most competitive business on earth. Among supermarkets, say, or gas stations or selling jeans, it’s always been survival of the fittest. If lettuce or pork chops or soap is too expensive at one grocery, for instance, you can always simply drive down the street to another.
Except something was interfering with this free market. Unfortunately, the banks that we merchants rely on to process our customers’ debit- or credit-card purchases were not living by the same rules of competition. Just two companies dominated that business – Visa and MasterCard. They price-fixed the fees their member banks charged merchants every time a customer swiped a card.

Without significant competition, the banks could mark up these bloated “swipe fees” 1,000 percent for debit cards and as much as 10 times that for credit cards. Because retailing is so competitive, we have to keep our prices low. So our profit margins are down around our ankles – often just 1 or 2 percent.

That means we have to raise prices to cover these outrageous swipe fees or risk going under. Congress stepped in to the debit-card market six years ago by stopping the credit card companies from squashing their competitors. Now, there is a competitive market in which merchants can choose between at least two different networks to process debit transactions.

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