Consumers are finding themselves squeezed in a heavyweight bout between the nation's big banks and big retailers over the "swipe fees" imposed when shoppers use their debit card at the register. And both sides warn the little guy will suffer if the other side wins.
As part of last year's financial regulatory law backed by President Obama, Congress asked the Federal Reserve to regulate the swipe, or interchange, fees that retailers pay to banks every time a customer pays with a debit card.
The result is a proposed cap of 7 cents to 12 cents on each transaction — down significantly from the current average of 44 cents — that would cost the banking industry about $16 billion a year, according to 2009 data from the Fed. Retailers could — but would not be required to — pass those savings along to consumers.
The regulation was supposed to be completed this week. But Fed officials say they will need more time to consider the impact on all sides. With so much money at stake, both sides have been lobbying furiously — on Capitol Hill, in full-page newspaper ads and even with posters in the District's Metro subway system.
Banks argue the government should stay out of the free market, saying the industry can regulate itself.
"The federal government should not be dictating the price a public company should be charging," said Richard Hunt, president of Consumer Bankers Association. "Period."
If the rule is imposed, it's a "mathematical certainty" that banks will compensate with new fees in other areas, Mr. Hunt said. That could mean new charges and fees for checking, debit, and online accounts. It could also lead banks to drop checking accounts for customers with low activity or balances under $200.
JPMorgan Chase has even floated the idea of capping debit-card purchases at $50 to $100 if the regulation is imposed.
Consumer groups, which are siding with retailers, say the banks are employing a "stupid bank trick" to scare shoppers and protect their profits. They point to similar threats banks made against credit card and overdraft fee regulations in recent years.
"I think the banks are like the boy crying 'wolf,'" said Ed Mierzwinski, spokesman for U.S. PIRG, a consumer group. "They're running around on Capitol Hill acting like their job is to protect consumers. But their job is to make money. That's all they've ever cared about."
Bartlett Naylor, financial policy advocate for Public Citizen, another consumer group, added, "Banks will charge whatever they can get away with. That will happen either way."
Retailers say the swipe fees are one reason for rising prices at stores across the country. If the bank fees were reduced, they predicted, competition among merchants would force down prices as well.
"There should be a pretty dramatic benefit for both retailers and customers," said Mallory Duncan, general counsel for the National Retail Federation. "You try to provide more value to your customers than the guy across the street."
But some wonder whether the retail chains will actually pass along the savings to consumers. Even if they do, consumers might not notice the price differences, when retailers would be saving only about 32 cents to 37 cents not on each product, but on the entire order, whether the tab is $5 or $5,000.
"I think retailers did not look at the best interest of the consumers," Mr. Hunt said. "Merchants are trying to get a benefit for free and it's going to hurt consumers."
Scott Watkins, a senior consultant with Anderson Economic Group in Lansing, Mich., predicted that banks and retailers will notice a difference in their share of the pie, but consumers will likely end up paying virtually the same amount, whether in swipe fees or new fees that the banks add to compensate for the loss.
At the store, Mr. Watkins doesn't expect merchants to immediately cut prices.
"You're probably not going to see prices go down," he said. "But it might allow for a slower increase of prices in the future."
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