Retailers remain a strong proponent for government price controls on debit card fees as they spearhead lobbying efforts to ensure Senator Dick Durbin, Illinois Democrat, can keep his amendment in the Senate banking regulation bill that will allow the Federal Reserve to determine how much credit card companies should charge for use of the payment network.
However, according to an article by the Daily Caller on Tuesday, Mr. Durbin’s home state appears be the recipient of a $20 million donation from Wal-Mart, one of the biggest financial beneficiaries of Senator Durbin’s debit card price control amendment, and the timing of the donation is a little odd:
“On the eve of a key vote in the Senate on an issue in which Wal-Mart is deeply invested, the company announced it is donating $20 million to charities and opening scores of new stores in the Chicago area, in the home state of Sen. Dick Durbin, Illinois Democrat, the retail giant’s top ally in its push to cap credit card fees.
The plan includes opening ‘several dozen’ new stores in Chicago and donating $20 million over five years to Chicago area charities “that work to eradicate hunger, curb youth violence and help all Chicago residents live better.”
At issue on Capitol Hill are so-called ‘interchange fees’ charged by credit card companies to process purchases in stores.
Wal-Mart is a key player, lobbying for government price controls on the amount of the fees, which typically comprise about two percent of the purchase value. Retailers argue they do not have enough leverage to negotiate reasonable rates.”
I asked Senator Durbin if he knew anything about the $20 million dollar donation that went toward his state, and the senator seemed oblivious about the entire donation. AUDIO
“I was not familiar with that. I don’t know if it’s true. I’ve had no contact, personally, with Wal-Mart on this issue. I’ve spoken to groups representing merchants and retailers across America,” he said. “Naturally, every retailer and merchant including the largest Wal-Mart would be affected by this decision, and I haven’t given them any special treatment. I’ve paid close attention to quick and easy convenient stores in central Illinois and Potash Supermarkets in Chicago. Everybody is in this. If you accept a credit or debit card, then you have an interest in this issue.”
“The credit card companies charge the retailers credit card fees when people use credit cards and debit cards. Wal-Mart is going to have to pay those fees, whatever they are,” he said.
What is particularly curious, though, is that Wal-Mart will see a boost to their bottom line due to the Durbin price control amendment on the cost of business fees Wal-Mart pays for accepting debit card payments instead of the marketplace resolving this B2B process, Mr. Durbin will now have the Fed establishing price controls on interchange fees, which basically passes the cost of business for Wal-Mart onto card holders.
A recent Washington Times editorial explained the logic of why credit card companies charge fees to their customers and how much the fees usually are:
“Fees vary, but based on industry averages, when a customer buys a $100 item from Wal-Mart using debit, the store keeps roughly $98. The remaining $2 takes care of the costs of processing the transaction and covering losses from fraud. The interchange fee, $1.50, goes to the bank that issued the card, and 50 cents goes to Wal-Mart’s bank, which handled the initial transaction.”
Furthermore, if Mr. Durbin’s amendment is successful in the end, Americans can say goodbye to free checking accounts at their banks. The Credit Union National Association’s top lobbyist, John Magill assured the Washington Times recently of this. “We’ll have to charge hefty fees on checking accounts or some other service to make up for this loss,” he said.