When introducing his amendment, Senator Durbin highlighted how he first became aware of Visa and MasterCard’s stranglehold on the credit card market when the owner of his favorite restaurant complained. It’s the same story you’ll hear from any small business owner across the country: they’re non-negotiable and out of control. Senator Durbin’s amendment made radical changes, shifting the balance of power from the big banks and credit card companies to small businesses, creating a much more level playing field.
It may sound surprising, but before the Durbin amendment passed, businesses – both large and small – were threatened by punitive actions if they offered customers discounts for paying with cash or checks. In addition, although you may have seen them in store windows, Visa and MasterCard’s draconian rule book prohibits small businesses from setting minimum transactions for consumers using credit cards – even if the swipe fee is so high that the merchant loses money when a transaction is made! Yes, Visa and MasterCard force small business to lose money. Not a sound business model – unless you’re Visa and MasterCard.
However, with the Durbin amendment, small businesses are now empowered to offer consumers lower prices if they use cash instead of credit. The Durbin amendment also allows small businesses to set a minimum of a $10 transaction, ending the ludicrous scenario whereby a small business would lose money when selling a small dollar ticket item. More importantly, the Durbin amendment instructed the Federal Reserve to regulate debit card swipe fees so that they are “reasonable and proportional” – a move that could see debit card swipe fees falling by as much as 80 percent.
And yet, the big banks and the credit card companies, long used to milking small businesses, are putting up a fight, spending tens of millions of dollars on a smear campaign to kill these commonsense reforms. Anyone that’s witnessed the actions of the big banks over the last few years will be well aware that they’re institutions hardly known for their transparency and fairness – and the debate around swipe fees is most certainly no exception.
When the Senate took action last May it was a landmark moment, proving that despite the problems that exist in Washington, it’s still possible to get bipartisan reforms passed that benefit both the American consumer and small businesses. It’s now up to our elected officials to resist the cries from the banks and implement these bipartisan reforms – as passed and on time.
They raise swipe fees and more businesses simply either refuse to take cards, or do like many gas stations and charge more for the convenience. The more businesses that do that the more people are going to start paying cash again. If people pay cash they can only purchase what they have the money for. Thus maybe we can get out of this downward spiral we’ve collectively gotten ourselves into where we have an economy so tied up in credit that credit is able to control our futures through credit scores, etc. I have used debit cards which I realize also have a swipe fee, but have never used a credit card because I believe in obtaining money first, spending it later. I’d prefer not to be in debt; student loans are the only debt I have and even that’s lower than for a lot of people. For me at least, this is a silver lining.
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p>Ever write a check? You write a number on a piece of paper, and you (probably) have the money in a different account. This is how lots of people use credit cards, including myself. I have a few thousand bucks kicking around in checking and saving, and my credit card bill is a few hundred bucks. I do have the money first.
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p>Thing is, if I lose my wallet or have it stolen and it’s got a few hundred bucks in it, that money is gone. If my credit card is stolen, know what I’m out? Nothing. Federal law limits exposure to $50, but most credit cards put that exposure at $0, including mine. Throw in the additional layer of consumer protection, that I don’t pay an annual fee nor interest nor late fees, and it’s safer than carrying cash. Why shouldn’t folks use credit cards instead of cash when they’re doing so for convenience and safety, not as a loan?
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p>P.S. Debit cards do not offer this protection. If somebody steals your debit card and guesses your PIN (unlikely, but possible), they can drain your account and you have no recourse.
DCU does offer debit card protection for PURCHASES. My number was compromised by someone who then used a dummy card in California to buy gift cards. I got my money back. All of it.
…but you can’t write for more than you have or your check will bounce. I didn’t mean that I physically had the cash on me. If you only use credit cards for what you can pay off in the same month, great, but so often people run up credit card bills and only pay the absolute minimum each month, thus finding themselves under mountains of credit card debt. That’s what I refuse to do. I don’t purchase things that require monthly installments. Even the couple of cars I’ve owned have been low four-figures used, and I wrote a check for the full amount – no financing required.
Historically, every Visa and Mastercard merchant agreement (the agreement between a merchant and the bank that handles the merchant end of the transactions) explicitly prohibited both minimum credit card purchases and also establishing a price differential between the credit card price and any other price. While these provisions were not always enforced, merchant banks waived those provisions at their convenience. So, until Dodd-Frank, merchants did not have the option of charging more for the convenience and also conforming to the provisions of their merchant agreement.
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p>Most banks now issue debit cards that are full-fledged Visa/Mastercard “credit” cards. They are secured by the current balance of whatever account they are issued on. A phone call to the issuing bank is all that’s required to remove any “overdraft protection” offered by the bank (a sleazy way bank’s rack up enormous fees), so that an attempted transaction that exceeds the current collectible balance is refused by the bank.
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p>The result is that you can have all the convenience of using a credit card with none of the credit risks that you correctly highlight. Using these cards, even as “credit” cards, has zero risk of incurring debt.
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p>I don’t know if the provisions of the Durbin amendment have actually found their way into today’s merchant agreements. Since I’m seeing more gas stations offer a price differential between “cash” and “credit” prices, I think they may be phasing in.
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p>I’m also not sure how these changes impact the historical differences between “debit” and “credit” transactions.
I am all for this but it misses the other scam that the banks have pushed. This is the idea that you should sign for your debit card. If you do that they can charge like it was a credit card.
I have an ATM debit card from my bank with a MC logo so it’s usable wherever MC is accepted. I have no credit line on it and the amount is deducted from my account. I’ve been asked for ID a couple of times because it’s not signed. When I was a retail clerk the customer would occasionally tell me whether they wanted debit or credit, but we ran it exactly the same way. We had no way to take PINs; we did ask for ID if not signed; and we had them sign the slip.
Chase is going to limit Debit Purchases to $50 or $100 because of the swipe fees.
Chase customers will have to carry two cards.
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p>Get big government out of our wallets!
What if the chase customer can’t get credit
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p>What if all they have available is their debit card with real money they have
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p>Screw them right.
That’s exactly what I meant, as you well know, EaBo.
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p>Let me ask you to consider a proposition: there might be a Democratic idea that actually benefited this country and had no negative consequences. Can you think on that for a bit? You don’t have to tell me your conclusion.
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Yep I’ll give you one Democratic, well at least John Kennedy Idea.
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p>That was a pretty good one.
Kennedy’s proposal cut the income tax rate from 91% to 77% and then 70%. I’m thrilled to hear that you support a top tax bracket of 70%.
my brother works for Wells Fargo and the prevailing view in the banking industry is that with the loss of fees on their side, will be the end of the free checking account in America, at least for those with limited means or accounts with a bank. So driving the poor out of checking accounts with banks and back to the check cashing stores may be an unintended consequence. And the exemption for small institutions on the swipe fees won’t be of help to them as they really won’t be able to assess their higher (allowed) fees on a competitive basis.
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p>Making no judgments on the merits of the swipe fee bill, but that will be one economic unintended consequence.
and is the main reason Scott Brown and I disagree on it.
on savings accounts and made money loaning out that money to other people at interest. I guess that business model isn’t working out anymore. People who live paycheck to paycheck are probably better off steering clear of banks altogether, what with fees for ATM withdrawals, fees for checking accounts (even savings accounts?), and the possibility of overdraft fees for mistakes.
There are two types of profitable bank customers: people with a lot of money, and people with little money. The former get their money invested; the latter tend to bounce checks and incur fees for that, so they generate profits. MOST customers — 80% is the general figure — COST banks money.
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p>So, do we really think banks will jettison the profitable customers? I don’t.
but in the words of Glenn Ordway, “you’re making my point”. Those swipe fees, bounce fees, et al subsidized your 80% figure. Unless you have large sums on deposit or your mortgage with your bank, free checking is going away.
I repeat: customera with low balances who bounce checks and get charged fees for that, or fall below a minimum balance and get charged for that, are profitable. Customers who keep the minimum balance and rarely if ever bounce checks cost the bank money.
“offering a discount” for cash, and checks, and charging the customer extra for using credit cards?
Will merchants also be allowed to pass on to customers the costs of processing checks?
How much, in dollars, are typical bank swipe fees?
If this bill effectively regulates those fees, is it still necessary to allow merchants to stick consumers with a credit card surcharge?
I wanted to say this yesterday, but I didn’t want to hijack the diary.
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p>I am tired of playing defense. I want to play offense and move our agenda forward. I will pose this in a separate diary, probably not today. (Disclaimer: I know “our agenda” is diverse, and that is one of the issues — but I think we can move forward on some basics.)
is what has us in this mess. Pardon us for actually fighting back. The Financial Services bill that is causing this headache was “your agenda”.
EaBo, I don’t know what’s in your proverbial craw lately, but I can’t ever recall you citing fees as a problem before for the financial industry. In fact, I can’t recall you saying anything about the financial industry. Now you’re all worked up about fees, because a Democratic bill addressed them?
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p>This is pointless bickering. For the last 82 years, really? I’ll try not to throw that back at you later.
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To wit: Why should we have a federal agency devoting time to setting and managing the fees that credit card processors charge for their service?
The reason why the feds should devote at least some time to “setting and managing the fees that credit card processors charge for their service” is that some of us don’t like neighborhood loan-sharks making loans with usurious interest rates and sending Guido to break knees when the victims can’t pay.
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p>Some of us see no difference between the monopolistic strong-arm tactics of organized crime and those of Visa, Mastercard, and the major banks.
There is zero difference whatsover between legitimate high-risk consumer lending and the Mafia.
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p>Therefore legitimate high risk consumer lending should be outlawed so that the only realistic source of high risk consumer lending is the Mafia.
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p>Poor people who do not wish to have kneecaps broken should just make do with cash like Great Grandpa used to do.
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p>Its for their own good.
…you can ask any number of questions beginning with, “Why should we have a federal agency to regulate…?” The so-called free market absolutely cannot entirely self-regulate. Government exists in part, I think, to offer a counterbalance to the inherent economic power that big business accumulates.
I think Democrats would do well to think hard about that question before fools-rush-in time. It would avoid a lot of unintended consequences, as has already been pointed out above.
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p>This regulation could have been a statute that is three sentences long, setting up a mechanism to prevent financial institutions from becoming too big to fail. Not only did they not manage to do that, having failed so badly, they try to make themselves feel better by throwing in all kinds of useless crap like this swipe fee thing, and now we will have an entire brigade of Swipe Fee Inspectors and Assistant Junior Inspectors to screw up consumer banking.
There do need to be enforcement agencies, though I’m not suggesting a new agency for every regulation. Some could be given to existing agencies.
The last 30 will do just fine. Before that we were doing quite a bit better.
Merchants can always offer cash discounts. They cannot charge more for the use of credit card purchases, however. Big distinction.
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p>Another “convenience” of credit cards that merchants and consumer activists don’t mention is the insurance against loss. For merchants that means that they get paid by the credit card company for the purchase regardless of whether the purchaser ever pays their credit card bill. For consumers, the credit card companies are the backstop against defective products or otherwise bad transactions with a merchant. If you, as a consumer, make a reasonable effort to resolve a dispute with a merchant and the merchant does not provide satisfaction the credit card company almost always washes the purchase and chases the merchant.
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p>Finally, another little recognized savings to merchants is the cost avoidance of cash management. Gas station operators love to beef about the “costs” of credit card transactions. They never mention the safety and convenience they enjoy because they don’t have tons of cash sitting around in registers. Putting aside sticky fingered employees, merchants don’t have to worry as much about hold-ups or night deposits or any of the other negative elements attracted by cash depositories.
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