Critics of retail efforts to lower interchange rates speak out as debate lands in U.S. district court

Frank Keating

The debate over interchange fees has landed in front of a U.S. district court judge and critics are speaking out against retailer efforts to have the interchange fee lowered even further.

The controversial Durbin Amendment, which caps the amount a bank can charge a merchant to process a debit transaction, or interchange fees, took effect in October 2011. When retailers made the case to Congress for a reduced interchange fee, they claimed that any savings resulting from the measure would be passed to consumers in the form of lower prices.

While the National Retail Federation estimates that retailers are saving nearly $18 million per day, data from the Electronic Payments Coalition revealed that prices for consumers have increased by 1.7 percent.

In addition to the windfall resulting from the Durbin Amendment, card processing giants Visa and MasterCard agreed to pay $7.2 billion, in what could be the largest anti-trust settlement in history, to retailers to settle claims that the firms colluded to fix interchange fees at unfairly high levels. Merchants party to the suit will split $6 billion in damages. Visa and MasterCard also agreed to lower interchange fees for eight months, valued at $1.2 billion, according to CNN Money.

The settlement may also allow retailers to recoup the costs of interchange fees by charging a “checkout fee” to consumers who pay with plastic.

Ten of the 19 class plaintiffs to the suit, however, have opposed the settlement, saying that the firms will still be allowed to take advantage of retailers as well as block competition, reports.

Retailers are back, however, after filing suit against the Federal Reserve, saying that the Durbin Amendment mandated an even lower interchange cap and that the current restrictions don’t go far enough.

Trish Wexler, a spokeswoman for the EPC, said that retail efforts to further lower the interchange rate demonstrate “politically motivated greed.”

“It is clear that for some retail lobbying groups, nothing is ever enough,” Wexler said. “By ‘objecting’ to a settlement that they themselves designed, they hope to create enough noise to secure even more handouts from Capitol Hill…These same tired arguments were already raised over and over during the seven year negotiation and would have been included in the final terms if they had merit. Moreover, retailers have yet to pass along savings to consumers from their last Washington handout – the Durbin Amendment – so why should anyone believe these arguments today?  We remain confident that this truly is the end of the ‘swipe fee’ debate, and that preliminary approval and eventually final approval will be granted by the court.”

The Durbin Amendment also impacted consumers in a different way. Banks saw revenue from interchange fees plummet after the Durbin Amendment took effect, leading many institutions to recoup the losses by charging fees in other areas. As a result, free checking is on its way to extinction.

A survey by of 247 banks across 25 U.S. cities revealed that only 39 percent of all banks currently offer free, non-interest checking accounts, a decrease from 45 percent in 2011 and 76 percent in 2009. The survey also found that ATM and overdraft fees have also increased, according to The Huffington Post.

Frank Keating, the president and CEO of the American Bankers Association, urged Congress in a letter last month to reject calls by retailers to further lower interchange fees.

“In truth, nothing is ever enough for some in the retail community and their desire to enjoy the benefits of our nation’s truly efficient payments system without ever having to pay for it,” Keating said. “More than two years after its enactment, the net effect of that amendment has been an increase in profits at big-box retailers, higher costs to small merchants, significant reductions in the revenue available to banks to serve local communities…We do not believe it is in the interest of policymakers or the consumers they represent to repeat the mistakes of the past by expanding price controls to more aspects of our economy.”

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