The battle over “swipe fees”

Part of the Dodd-Frank financial overhaul law was a measure to limit fees banks may charge retailers each time a consumer pays by swiping their debit card.  Maybe I’m missing something, but these swipe fees didn’t cause the financial crisis in 2008?  Sounds like the retail lobbyists had the ear of Congress.

Anyway in yesterday’s WSJ, Robin Sidel and Vitoria McGrane co-wrote an article entitled Banks and Merchants Reload for Fee Battle.  I quote pertinent paragraphs below.

Banks and credit unions are using a recent debit-card scam at Michaels Stores Inc. as fresh ammunition in their fight against a federal proposal to reduce the amount they can charge merchants for processing such payments.

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The debit-fee measure requires the Federal Reserve to write a rule restricting what are called swipe fees.  The central bank issued a draft proposal in December, capping the fees at 12 cents a transaction for large banks, down from the current average of 44 cents.

Banks have assailed the proposal, in part because they say it doesn’t take into account the cost of losses that result from a bank data theft or breach.  Customers aren’t liable for unauthorized debit transactions; those costs are typically absorbed by the bank that issued the plastic.

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Fraud costs won’t go away when the Fed caps swipe fees, banks say, so they will have to find other ways to address those costs, such as raising fees on consumers and eliminating rewards programs.  Banks have said they may protect themselves from fraud losses by capping debit-card transactions at $50 or $100.  They haven’t said they would stop reimbursing consumers.

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The retail industry is pushing back.  Retail officials say in many cases bank make merchants cover the cost of fraud incidents.  Retailers say they also have invested billions of dollars helping to plug security holes while the banks refuse to take a step that, according to retailers, would make the system far safer: Issuing consumer cards embedded with computer chips, which retailers claim are less vulnerable to fraud than debit cards that require a signature.

The consumer really does not have a bone in this fight between the banks and the retailers.  But as a consumer, hey banks, DO NOT raise fees, DO NOT eliminate rewards program.  If banks want to cap debit transactions to $50 or $100, that’s fine with me.  But I agree with the retailers, banks need to “get with the program” and issue cards with the embedded computer chip.  Less susceptible to fraud and would ultimately reduce the number of fraud claims.

Now, can we focus on more fundamental problems with the economy?


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