A week before President Biden declared inflation the nation’s number one economic problem, the powerful Senate Judiciary Committee held hearings on a contributor that has been much less discussed than the obvious drivers of soaring health costs. food and labor.
In late April, the country’s two major credit card companies increased fees charged to restaurants and other merchants for processing transactions charged to a customer’s card. The double-digit increases were imposed despite a bipartisan, bicameral demand from federal lawmakers to delay fee increases until inflation cools.
It was “a finger in the eye of Congress,” said Lyle Beckwith, senior vice president of government relations for NACS, the convenience store trade association, and leader of the Merchant Payment Coalition, a group that has pushed back against credit card industry fee increases over the past 20 years.
“Fees are already so high they should be lowered instead of raised,” Beckwith said during an appearance this week on Working Lunch, a podcast that examines policy developments and issues affecting small businesses such as as restaurants and convenience stores.
Beckwith noted that merchants in the United States pay about six times the rates charged by their counterparts elsewhere in the world for credit card processing. Known as swipe fees, appraisals are often the third highest variable operating cost for restaurateurs, behind food and labor, according to the National Restaurant Association.
The problem, according to Beckwith and the association, is a lack of competition. Merchants cannot buy the best deal on swipe fees. They also cannot negotiate a price with processors that reflects variables such as the volume of loads a facility handles. Instead, an institution is obligated to pay the fee set by the bank that issued the credit card.
“Market forces really don’t work. They are not supposed to work. They’re not designed to work,” said Sen. Dick Durbin (D-Ill.), chairman of the Judiciary Committee, at the launch of the hearings last week.
As a result, opponents say, sweeping fees have more than doubled over the past decade. In a letter to lawmakers, the Association noted that the increases came despite advances in technology that made the processing function more efficient.
During this week’s Working Lunch podcast, co-host and government affairs veteran Joe Kefauver noted that credit card companies’ banking partners are already enjoying an inflation windfall. Since their fees are a percentage of a transaction, the absolute number of dollars paid to banks has increased as menu prices and guest tabs have increased.
During court hearings, a Visa representative said the credit card company cut fees early in the pandemic expressly to help restaurants, grocery stores and schools survive the crisis.
“In April, we lowered interchange rates for the majority of U.S. businesses,” said Bill Sheedy, special adviser to senior management at the card company.
But there’s an asterisk behind that claim, according to Sean Kennedy, executive vice president of public affairs for the National Restaurant Association. In a letter to Durbin and his Republican counterpart on the Judiciary Committee, Senator Chuck Grassley of Iowa, Kennedy asserted that “in reality, most small restaurants do not qualify for these fee reductions.”
The letter, which Kennedy requested be placed on the public record of the hearings, urged the Judiciary Committee to remedy the situation by ending the duopoly enjoyed by Mastercard, Visa and their partner banks.
“Alternatives are readily available for debit card processing and our restaurants are empowered to make rational business decisions between competing service providers,” Kennedy noted. “This kind of healthy competition should also be injected into the credit card market.
“Restaurants are ready to work with the members of this committee to establish a healthier level of competition within the country’s payment ecosystem.”
“There are several options going on right now,” Beckwith said during the working lunch. “What is happening in Congress right now is a call for competition.”
His group, the Merchant Payment Coalition, has been lobbying Congress for decades to overhaul how the credit card industry operates. He notes that MasterCard and Visa have the advantage of setting swipe fees as high as possible. The higher the fee, the more a partner bank will earn from processing card fees, and therefore the more likely it will be issued a card by the card company with the highest read fee.
“Banks should set fees independently and compete with each other to offer the lowest fees,” the group argues.
The Coalition also encourages lawmakers to instill more transparency in the charging process. As several interveners pointed out during the hearings, most consumers do not realize that a company that accepts their credit cards pays more than 2% of the transaction to a bank, with the credit card company taking often fixed costs. Durbin said the fee is usually 10 cents.
Consumers regularly pay these fees without realizing that they have been rolled into a merchant’s prices.
The idea was floated at the hearings to require credit card companies to reveal to consumers how much their monthly card charges are paid in swipe fees.
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