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Each of the last two years, I have been fortunate to take part in the National Restaurant Association’s Public Affairs Conference in Washington, D.C. The NRA provides briefings on top issues, and attendees hear from some great speakers. However, the most important work happens when the 500 attendees get bused over to meetings with their congressmen and senators.
Although I was disappointed by the low attendance from those in the fast-casual segment, you were well represented by the operators who took part. While I will keep my conversations with my state’s delegation confidential, I found that they were willing to listen and wanted to hear from us on a more regular basis. We must call, write, email, and, most importantly, develop long-term relationships with those who represent us in congress and their staffs if we want any chance of winning these fights. Other industries have huge lobbying budgets on their side, but we have 12.8 million voters and workers employed at 960,000 locations on our side. The cynics will say that only big money matters in politics, but lots of congressmen who lost their jobs last election will tell you that the little guy can have a huge impact.
Lots of hot button issues like health care reform and depreciation were discussed, but one issue has flown under the radar for many of us. Debit card swipe fee reform is an area that has received little press, but it’s one that has a big impact on our bottom lines.
Unlike free markets where competition keeps prices low, this market is a duopoly controlled by Master Card and Visa who have fixed prices far above what is realistic. In fact, it’s at an average fee of 44 cents per transaction. Costs have consistently gone up over the years while technology has improved and the volume of debit card transactions has increased. Fortunately, congress passed the Durbin Amendment last year, which tasked the Federal Reserve with setting “reasonable and proportional” fees that the Fed draft rules set at 7-12 cents per transaction. It’s a range, which much simplifies the extremely complicated and obtuse system of fees in use now.
All this all caught the banks and their lobbyists off guard and they are now trying to delay the Durbin Amendment to study the impact for two years instead of letting it take effect by July 21. In this case, “studying” means giving the banking lobbyists two more years to plan their fight and spend millions and offering their legislative allies more time to kill the reforms. Unbelievably, bank groups are running ads that say stop the “greedy merchants” form taking your money, which, of course, leaves out the fact that the greedy bankers and Visa/Master Card are already taking it via these swipe fees.
Messing over small business owners with outrageous fees has never resulted in savings for businesses or consumers. While merchant savings from reform may not go directly to the consumer, they will go to things like investment, job creation, workers pay, and equipment upgrades, which help society and consumers much more than the current padding of huge corporations’ balance sheets. Almost all net job creation in the U.S. comes from small businesses—not directly from the big banks or credit card companies.
Since most small banks are exempted under the Durbin Amendment, the benefit of these ridiculous fees is going straight to big credit card companies and the largest banks in the country. Those are the same companies that already have free or cheap access to capital at the expense of the small businesses that have been really hurting over the last few years. During the same time period, taxpayers have bailed out these huge banks for their mistakes to the tune of billions of dollars which has only made our national bank crisis worse.
In a wise PR move Visa, MasterCard, and the big banks are letting community banks and credit unions argue their case. With 800 institutions on the FDIC watch list of troubled banks and generations of family members in the banking business, I am very supportive of small banks. They provide much of the lending to small businesses. However, they are exempt under the Durbin Amendment. In addition, banks have proven over the last 50 years that they are experts at finding another source of fees when one dries up. They will also claim that the risk was taken away from merchants and handed to banks when debit cards took off at the expense of paper checks. Maybe their system is faulty and poorly designed, but there is no reason that merchants and consumers should have to pay for that.
I argue that the chances for fraud would go way down if all debit transactions in person and online required pin numbers at a cost that would also significantly lower the $16 billion merchants pay in debit-interchange fees each year. It is completely unreasonable to small businesses to bear the costs of poor decisions made by large banks, Visa, and MasterCard.
As the happenings of the last two years will attest, none of the struggling or bankrupt restaurant companies, their investors, or employees were insured against failure or bailed out by the government. Banks, MasterCard, and Visa will also use the free-market argument against prices being “fixed” by the Federal Reserve. This argument has little validity in this case, as it is the duopoly or oligopoly that is already fixing prices that is making it.
I urge you to get on the phone or computer now, and call or email your representatives and senators to ask them to oppose S.575 and H.R. 1081 and support implementing the Durbin Amendment reforms on time.
For many of those in congress, this is a tough issue since it pits friends (banks) vs. friends (merchants and restaurants). Make their decision easier; they need to hear from the hundreds of thousands of restaurant operators in the country.