Debit Card Swipe Fee Reform Helps Maine's Economy
According to a new economic report released this week by the Merchants Payments Coalition, debit card swipe fee reform has accomplished much of what Congress intended when it passed debit reform legislation in 2010 by pumping a significant infusion of savings and jobs into state economies across the country.
The report, named The Costs and Benefits of Half a Loaf: The Economic Effects of Recent Regulation of Debit Card Interchange Fees, can be found at www.unfaircreditcardfees.com.
In Maine, the lower debit card swipe fee, which the Federal Reserve dropped from 48 cents per transaction to 24 cents, allowed Maine’s retailers and grocers to reduce costs, saving consumers $22 million and spurring the creation of 139 new jobs in 2012.
The report also measured the potential impact on the U.S. economy had the Federal Reserve followed the language of the law. The Federal Reserve, for example, originally proposed a rate of at most 12 cents per debit swipe. In Maine alone, $10 million would have been generated in consumer savings along with an additional $4.6 million in merchant savings and this would have been sufficient enough to support an additional 66 jobs.
Had credit card swipe fees been reduced to 24 cents per transaction, Maine consumers would have saved an additional $57 million, merchants would have saved another $25.5 million, and 365 new jobs would have been created last year.
The report uses a 24-cent interchange fee for credit card transactions as a reference. The actual number could be higher or lower. The reference is well above the pending European Commission’s proposal to cap credit card swipe fees at 30 basis points (i.e. 3/10 of 1%). At that level, the swipe fee on the average $40 retail transaction would be 12 cents. This figure was used as an objective example of the fees, savings and jobs that might result from credit reform but was not a statement as to what the most appropriate credit card swipe fee level would be.
“It’s clear that debit card swipe fee reform lowered prices, and it was an important change for Maine people,” says Curtis Picard, executive director of the Retail Association of Maine. “It’s imperative that we get this right and keep moving forward with swipe fee reform so that retailers and grocers can continue to pass along their savings through lower prices and invigorate consumer spending, our primary economic driver.”
Shelley Doak, executive director of the Maine Grocers Association also says, “Swipe fee reform is just what small business owners, who historically have been the primary drivers of job creation in the U.S., need as it would boost their cash reserves and allow them to invest in their stores and expand their employee base.”
In addition to the economic report, MPC also released state-by-state numbers (link to chart) for consumer savings, merchant savings and jobs with swipe fees reduced to 24 cents for both debit and credit cards and to 12 cents for debit cards. MPC calculated the state-by-state numbers by distributing them proportionally to states' share of the U.S. gross domestic product.
The report was compiled by internationally-respected economist and advisor to Presidents, Prime Ministers and Fortune 100 companies Robert Shapiro of Sonecon LLC. Shapiro analyzed the Durbin Amendment of the Dodd-Frank “Wall Street Reform and Consumer Act,” which was created to rein in runaway swipe fees levied on merchants and consumers every time a debit card was used to pay for a purchase.
Viewed from a national perspective, the savings and jobs numbers are significant and would help revive the country’s sluggish economic recovery. The major findings of the report include:
- Reducing the cost for merchants to swipe debit cards put $5.8 billion back into the hands of consumers across the country through lower prices, which led to increased spending and helped create 37,501 new jobs in 2012. Merchants realized savings of $2.6 billion.
- These savings and job gains, however, could have been substantially larger had the fee been cut to 12 cents as originally recommended by the Federal Reserve. If that cut had been implemented, an additional $2.79 billion would have been generated in consumer savings, $1.2 billion in merchant savings and 17,824 more jobs would have been created.
- If credit card swipe fees had been reduced to 24 cents, consumers and merchants would have realized an annual savings of $22.3 billion, generating a total of 98,600 jobs every year. All told, with improved debit reform and credit reform, the savings to consumers and merchants would be $34.9 billion and nearly 154,000 jobs would be created annually.
“Making debit card reform consistent with the law we already have and reforming credit card swipe fees would be a tremendous boost to Maine,” says Shelley Doak. “We need the lower prices and jobs that full swipe fee reform would give us now.”
Credit card swipe fees continue to gouge merchants and consumers. The fee, which can be as high as four percent of the transaction and often exceeds what the merchant earns on the sale, is the second highest operating expense for merchants, trailing closely behind labor costs. Consequently, merchants often have no choice but to pass a portion of this expense down to consumers in the form of higher prices irrespective of their form of payment.
As it stands now, Americans pay the highest swipe fees in the industrialized world, eight times more than in Europe. Although the cost to process these transactions has fallen given improvements in technology, the swipe fee for credit cards continue to skyrocket. All told, swipe fees generate approximately $50 billion for banks every year. Visa and MasterCard, who together control 80% of the card market, set these fees in secret so that banks don’t compete on price.