NEA, NAACP, Credit Unions and Banks United on Swipe Fees
In a rare combination of events, banks and credit unions are aligned on one issue – and that is swipe fees. I personally never thought it would happen, but for all the people out there that think banks are bad and credit unions are good, ask yourselves: why are we both on the same side? Does that mean credit unions are bad too, or do we both have legitimate reasons for wiping out this horrible piece of legislation.
What are Swipe Fees and why should you care?
Swipe fees are fees paid by the merchant to banks and credit unions that issue debit cards. These fees range from 1.5% to 5% or so and they are expensive to the merchant. The most expensive of the cards are probably American Express and Discover, these cards offer consumers 1% cash back in their commercials – and that money has to come from somewhere – it comes from the merchants. Most transactions are in the 1.5% to 2.5% range depending on how the transaction is processed.
Why do these fees exist?
Swipe fees cover a variety of expenses. But most of all, they cover the cost of fraud when a consumers card is stolen, or used fraudulently. Under Regulation E, the bank has to reimburse the consumer if their cards are used fraudulently. So, if the card is cloned and used in India, or is stolen and used online in China, the bank refunds those monies back to the consumer. There are only a few situations, where the bank can actually charge the fraud back to the merchant, but it is really difficult to do so and banks lose 99.9% of the time for counterfeit/cloned cards and we lose 100% of the time for merchants that are online and use Verified by Visa.
Why are the NEA and NAACP behind this?
When you look at the state of money in the U.S., you will see several trends emerging:
- More and more merchants are not taking checks
- More and more merchants will only accept $20 bills and lower
- Merchants don’t offer discounts to pay cash or check over debit/credit cards
- Merchants don’t want to take checks because of increasing check fraud or Non Sufficient Funds (check chargeback)
- Counterfeit cash appears to be on the rise and they can be difficult to spot as well as the possibility of robbery
- Training their associates to negotiate is not on the top of the list, and they probably don’t want to negotiate with a consumer.
So, when you add these up, merchants like debit and credit because they GUARANTEE FUNDS. They don’t have to worry about counterfeit cash or bad checks and the possibility of the bank charging a card back against the merchant is REALLY, REALLY hard – remember the 99.9% chance (against) as stated above.
If banks do lose the interchange, this is going to cause a series of cascading events which is not going to be pretty. Banks don’t want to lose this interchange because it is a significant amount of money to lose that pays for a lot of services to bank customers that are not necessarily profitable.
- $0.12 as proposed by the fed, that’s the high side, doesn’t begin to pay for actuals costs + (fraud risk/fraud costs). The true range of reimbursement is 7 – 12 cents.
- Loss of that interchange means that we have to make it up somewhere else. Anyone willing to take a pay cut and be told you can’t go out in the workplace to make it up somewhere else?
- Banks and credit unions will have to charge fees and that means some customers on the lower rungs will not be able to afford the bank fees and free checking will go away.
The simple fact that so many diverse groups, which are normally at odds, are against this is a really strong indicator that the legislation as it exists is really BAD!