Many have seen the signs in local restaurants: “A minimum of $10 to use credit card.” For consumers, it is an inconvenience. For small businesses owners, it is the only way to protect their bottom line from large credit card companies and Wall Street banks that impose onerous fees on every swipe.
Today, each time you slide your card, credit card companies receive 2 to 4 percent of the total purchase through so-called “swipe fees.” While it takes just four cents to actually process the transaction, big banks and credit card companies reap an average of 44 cents on every swipe.
For a small business, the fees can be pretty significant,” Amy Sowards, owner of a West Virginia restaurant, told The Charleston Gazette in March 2011.“It’s money you could use to grow a business, hire more employees, increase their hours.There’s so much we could do with that money.”
In July 2010, Congress passed the Durbin Amendment as part of the Wall Street Reform bill, instructing the Federal Reserve to create and implement rules that protect small businesses from oppressive Wall Street banks and credit card companies. In response, the Federal Reserve limited swipe fees to 12 cents – which is still three times the cost of processing the transaction and a generous provision considering similar fees on paper checks have been completely prohibited for nearly a century.
The Federal Reserve has yet to move forward with implementation. Unfortunately, some on Capitol Hill are doing the bidding of Wall Street’s crony capitalists. Sens. Jon Tester (D-MT) and Bob Corker (R-TN) recently introduced legislation to further delay the application of the limit. Their proposal seeks to launch a swipe fee study so Congress can avoid ending the monopoly credit card companies have in this market. The delay their legislation will intends to cause will result in nearly $150 million a day moving from local merchants into the coffers of big banks and credit card companies.
“The swipe fee reduction that was included in the financial reform bill will mean a great deal to many small businesses,” June Kaefer, owner of Jack’s Lawn Mower Service in North Tonawanda, N.Y., wrote to the Credit Union Journal Daily Briefing. “Right now, banks nickel and dime retailers to death, and we have very little recourse. This bill takes away the feeling of helplessness that small businesses have when dealing with big banks.”
When credit cards were first introduced, the principles of the free market kept swipe fees at a reasonable level. However, as debit and credit cards began to fill our wallets and the acceptance of plastic became a necessity for businesses, merchants were forced to succumb to the large credit card companies’ pricing demands, rather than having the power to negotiate and find common ground.
As a result of the unleveled playing field, American merchants and consumers paid more than $48 billion worth of swipe fees in 2008 alone. While these expenses are largely concealed from most consumers, the costs are hardly hidden from the bottom lines of small businesses. In fact, for many merchants, swipe fees are the second largest expense and sometimes account for more than their total pre-tax profits – a cost businesses are often forced to pass on to patrons.
Each day implementation of the Durbin Amendment is delayed it costs us, as consumers, millions. Powerful credit card companies and big banks have monopolized the market and forced merchants to yield to their demands. Small businesses and consumers simply cannot afford to allow the same Wall Street banks we bailed out as taxpayers to pilfer our pocketbooks at the cash register.
Stephen DeMaura is President of Americans for Job Security