A week before President Biden declared inflation to be the nation’s Number One economic issue, the powerful Senate Judiciary Committee held hearings on a contributor that’s been discussed far less than the obvious drivers of soaring food and labor costs.
In late April, the nation’s two major credit card companies raised the fees restaurants and other merchants are charged for processing transactions charged to a customer’s card. The double-digit increases were imposed despite a bipartisan, bicameral request from federal lawmakers to delay the fee increase until inflation cools down.
It was “a finger in the eye of Congress,” said Lyle Beckwith, SVP of government relations for NACS, the c-store trade association, and head of the Merchant Payment Coalition, a group that has been pushing back on fee increases from the credit card industry for 20 years.
“Fees are already so high that they should be lowered instead of raised,” Beckwith said during an appearance this week on Working Lunch, a podcast that looks at political developments and issues affecting small businesses such as restaurants and c-stores.
Beckwith noted that merchants in the United States pay about six times the rates their counterparts elsewhere in the world are charged for credit-card processing. Known as swipe fees, the assessments 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 can’t shop for the best deal on swipe fees. Nor can they negotiate a price with processors that reflects such variables as the volume of charges an establishment handles. Instead, an establishment is stuck with paying the fees set by the bank that issued the credit card.
“The market forces really don’t work. They’re not supposed to work. They’re not designed to work,” Sen. Dick Durbin (D-Ill.), chairman of the Judiciary Committee, said in kicking off last week’s hearings.
As a result, opponents say, swipe fees have more than doubled in the last decade. In a letter to lawmakers, the Association noted that the increases have come despite technological advances that have 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 a windfall from inflation. Because their charges are a percentage of a transaction, the absolute number of dollars that flow to the banks has increased as menu prices and guest tabs have risen.
During the Judiciary hearings, a representative of Visa testified that the credit-card company cut its fees at the start of 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, a special advisor to the card company’s top management.
But there’s an asterisk to that assertion, according to Sean Kennedy, EVP of public affairs for the National Restaurant Association. In a letter to Durbin and his Republican counterpart on the Judiciary Committee, Sen. Chuck Grassley of Iowa, Kennedy asserted that “in reality, most small restaurants do not qualify for these fee decreases.”
The letter, which Kennedy asked to be entered into the public record of the hearings, urged the Judiciary Committee to address 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 type of healthy competition should be injected into the credit card market as well.
“Restaurants stand ready to work with Members of this Committee to establish a healthier level of competition within the nation’s payment ecosystem.”
“There are several options that are going on right now,” Beckwith said during Working Lunch. “What’s going on in Congress now is a call for competition.”
His group, the Merchant Payment Coalition, has been pressuring Congress for decades to revise the way the credit card industry works. It notes that MasterCard and Visa have an advantage in setting swipe fees as high as they can. The higher the fees, the more that a partnered bank will collect from processing card charges, and hence the more likely they’ll be to issue a card by the card company with the highest swipe charges.
“Banks should set fees independently and should compete to offer the lowest fees,” the group maintains.
The Coalition is also encouraging lawmakers to instill more transparency into the charging process. As several speakers noted during the hearings, most consumers don’t realize that a business that accepts their credit cards is paying more than 2% of the transaction to a bank, with the credit card company often taking a set fee. Durbin said that fee is typically 10 cents.
Consumers routinely pay those charges without realizing they’ve been baked into a merchant’s prices.
The idea was floated during the hearings of requiring the credit card companies to reveal to consumers how much of their monthly card charges were paid in swipe fees.
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