The Consumer Protection Act and the Durbin Amendment, passed by both Houses of Congress and signed into law by President Obama last year, changes how much a merchant is charged a “swipe fee” every time a consumer uses a debit card.The Durbin Amendment reduces the amount a business pays when consumers swipe. It was unregulated by a virtual monopoly controlled by the big banks. The Durbin Amendment states that each time a consumer swipes, the merchant could not be charged more than 12 cents per transaction, which was a 75% reduction on how much small businesses were paying. The Consumer Protection Act was signed into law by President Obama in 2010, but wasn’t scheduled to come into effect until July 2011.
The Durbin Amendment did three things. In addition to lowering the swipe fee, it allowed businesses to set minimums and charge consumers less if they are paying with cash.
Even before the law took effect, the big banks tried to repeal those reforms. Senator Tester from Montana has introduced legislation that would delay the Durbin Amendment for two years for further study on the hope that in 2012 Republicans would take the Presidency and both Houses of Congress would then repeal any and all consumer-friendly reforms.
According to the Retail Industry Leaders Association (RILA), a delay would cost small businesses across the United States $33 million a day in swipe fees. “This is money coming out of the pockets of small business owners, money that could be used to create jobs and better wages. Small businesses are the engine of our economy and this is just another way for the banks to make windfall profits,” said a RILA spokesperson. “We tax payers have already bailed them out once and they are asking for a second bailout now. Unfortunately, the big banks have a lot of money and a lot of influence in Washington. They have high-powered lobbyists and television ads. That is why they are talking about delaying these reforms before they go into effect. Not because the reform will not be helpful to our economy. They will. The reform will allow small businesses to grow and create jobs. Today, we saw a group of small businesses explaining why we need swipe fee reform now and they don’t need it to be delayed.”
Eboni Holloway, owner of Eb Did It Baskets a customized theme basket company said, “As a merchant, it hurts my business personally. I have to charge my customers more as opposed to if they were using cash. Debit cards are an easier way for them to make purchases. However, fighting the banks and credit card companies and the debit fees they are imposing against merchants, which we in turn have to impose on our customers, is really disgusting. We are losing up to 70 percent. If I charge 99 cents for a cup of coffee, I would only retain 20 cents. That is how bad this is becoming. People do not realize it. We do need debit card fee reform to go into law July 21 and have the Durban Amendment supported by our legislators.”Samuel Elijah, owner of S.W.E. Photography, Inc., does portrait and corporate photography. “If swipe fee reform is delayed, it will hurt small businesses. We need the fees regulated so that we can keep the fees down, so that we can charge our clients more reasonable fees for the services we provide.”Akeesha Freeman, manager of Sugar Hill Restaurant added, “Swipe fee reform is important. We are looking to grow our business in this day of gentrification of our neighborhood, we are competing with other businesses. We are looking to grow our staff. We are looking to stretch our creative dollar within our business, especially in this economy.”
Ms. Holloway said, “Big businesses don’t necessarily lose out as much as small businesses. Mom and pops are financing their business out-of-pocket, based on per purchase. Large businesses can absorb the fees. As a small business owner, I am able to negotiate with wholesalers on supplies. There is no negotiation allowed with Visa, MasterCard or the banks. I don’t want to lose customers because I am overcharging them, but there is no way around it. I have to be able to charge them if they are using their debit card. You want them to use their cards because it is more accessible. I have to ship to people who go on my Web site or overseas. My customers can’t always do face-to-face cash transactions. And a lot of times people don’t walk around with cash in their pockets. Debit cards are an easier way to do business. Is it worth it if the merchant and the customer loses out? I have to charge customers for using a debit card and the banks also charge the customer for using the card. It looks like we are trying to get over on our customers. We are caught in the middle. Even if the swipe fee is capped at 12 cents, the banks don’t lose. There are too many transactions across the country.”She added, “I am a consumer as well. I am hesitant to use my personal debit card because I don’t know if I am causing another merchant to incur fees.”Mr. Elijah said he charges photography fees and sometimes his customers have to pay with a debit card. “I have an issue with the swipe fee surcharges. Sometimes I have a two-tier fee structure. If the customer is paying cash, I charge a little bit less than if they use a card associated with debit. When negotiating a fee I always ask, ‘How are you going to pay?’ They ask, ‘Why? What’s the difference?’ Then I have to explain the intricacies of the United States banking system, which I am not real good at. I am an artist. When it comes to negotiating contracts [based upon payment method], I don’t want to be having this conversation. I have to tell them there are applicable fees that I have to pass on. I feel like when they walk out of the studio, after paying cash they walk out with a better feeling about the experience with me than they dowhen we have to go through the whole debit card explanation.”
“If every consumer who experienced swipe fee surcharges wrote to their U.S. Senator, we wouldn’t be having this conversation,” said Mr. Elijah.