Swipe fee reform to benefit small businesses

By Jim Henter

Wall Street reform is poised to pass Congress and Iowa businesses and consumers stand to benefit, thanks to an important provision designed to put money back in the hands of retailers and residents - and out of the pockets of big banks and credit card companies: swipe fee reform.

Swipe fees are what the banks and credit card companies charge large and small businesses, universities, local governments and anyone else that accepts debit or credit as forms of payment. The average swipe fee is 2 percent of a transaction but can be as high as 5 percent in some cases. These fees have increased more than 300 percent in the past decade, even though just a fraction of the fee is needed to pay for the processing the transaction. The bulk of it goes toward rewards programs and profit for the credit card companies and big banks. In 2008, they collected $48 billion in swipe fees.

What's even more troubling is the loophole they have seized when it comes to debit cards. Even though debit cards and checks are essentially the same, Visa and MasterCard charge more than 40 times more for processing a debit card than to process checks.

All of these fees hurt small businesses or - worse - are passed on to consumers in the form of higher prices. In fact, many small business owners make less money off their business than Visa and MasterCard do.

The Senate recognized this was unfair and, over the loud objections from lobbyists, last month voted on a broad, bipartisan basis to pass an amendment that would allow the Federal Reserve the authority to make debit card transaction fees “reasonable and proportional.” It also will allow a store owner to offer discounts to customers who choose to pay with cash - something they can't do today.

Just imagine the uproar if the Coca-Cola Company and PepsiCo suddenly told your local convenience store that they could accept competing brands of soda, just as long as they never offered any discounts. This is simply anti-competitive.

The credit card companies and banks are fighting back by launching a campaign of deception. They are even propping up credit unions in this anti-Main Street crusade, despite the fact that the bill exempts all but the largest three of them - the other 7,500 credit unions will be unaffected.

So it comes down to a simple choice: Will Congress side with small business owners and consumers or with credit card companies and big banks? I hope that Iowa residents and retailers can count on the support of our own senators, Chuck Grassley and Tom Harkin.

Jim Henter is president of the Iowa Retail Federation. Comments: jhenter@iaretail.org