Archive for Friday, May 14, 2010

Bill would reward cash, check, debit card users

May 14, 2010


— Banks and retail organizations squared off Thursday as the Senate sought to make it possible for merchants to offer customers discounts if they use cash, checks or debit cards.

Both sides were heavily lobbying a measure by Sen. Richard Durbin, D-Ill., that would force credit card companies to charge businesses less for debit card transactions than credit card payments.

Durbin, the second ranking Democratic leader in the Senate, wanted the proposal considered as an addition to a package of new financial rules the Senate is considering to ward off a repeat of the financial crisis.

Under current practice, a business that accepts major credit cards signs agreements with the card companies to pay a percentage of each transaction, usually about 2 to 3 percent. But credit card charges cost more to process than swipes with a debit card.

The change would represent the most direct and tangible consumer benefit of the regulatory overhaul and would amount to a triumph for Durbin who failed to get a similar proposal attached to an overhaul of credit card regulations last year.

The issue pits the politically popular appeals of small business owners against the influence of community banks and the lobbying power of the credit card companies.

Durbin wants the Federal Reserve to ensure the fees that credit card companies charge for debit card use are proportional to the costs of processing the transaction.

Durbin’s measure requires that once merchants can pay lower fees for debit card purchases, they would be able to offer discounts to their customers based on their method of payment. To win more support, Durbin included an exception from the fee requirement for banks with assets of less than $10 billion. Durbin said even with that exception, his legislation would affect 65 percent of all card transactions in the United States.

Still, the Independent Community Bankers Association opposed the proposal, arguing large retail merchants may choose to accept only the cheaper cards offered by large banks or that small banks will be forced to accept the lower fees big banks would receive.

Retail groups countered that any reductions in fees would be passed on to consumers. Henry Armour, president and CEO of the National Association of Convenience Stores, said credit and debit card fees are the second biggest expense in his industry, behind labor costs.

“This is an issue that affects in our industry 160 million consumers a day,” Armour said.


Richard Heckler 8 years ago

Why is it that merchants do not require signatures on charges of $25.00 or less?

No signatures and no ID checks sorta opens doors for major theft???

SettingTheRecordStraight 8 years ago

"...that would force credit card companies to charge businesses less..."

The public should be deeply skeptical of any law that would "force" a company into a business practice.

"...the Senate sought to make it possible for merchants to offer customers discounts if they use cash..."

Merchants are already free to offer discounts to cash-paying customers.

"...ensure the fees that credit card companies charge for debit card use are proportional..."

This is basically price-fixing.

madameX 8 years ago

I disagree, I used to work for a small business that was getting screwed by credit card charges. It was food, most of the charges were $5 or less. They imposed a minimum on CC transactions and some customers were ok with it, but you should have heard what some of the others had to say. However, the business was actually losing $$ on transaction under $5 and not making enough on those over $5 to make up for it. The idea of a cash discount was floated but didn't happen during my tenure, so no comment on that. My point is that 1) people are frequently buttheads who will pitch a fit if something is slightly inconvenient to them, so trying to structure a business in a way that takes into account CC costs may not be a practical option and 2) If the CC companies listened to their customer base (business) in the first place that worked out charges that are actually doable they wouldn't be in the position of having legislation considered that would make them do it.

SettingTheRecordStraight 8 years ago

Doing business with vendors is challenging and sometimes expensive, but that doesn't mean the government should fix the prices in a transaction.

In response to your first enumerated point, if a business model cannot accommodate credit card transaction costs, then that business model should change.

In response to your second point, free markets don't rely on government reprisals in order to increase revenue for one party and decrease revenue for another party.

madameX 8 years ago

Re: the first point: I think you may have missed what I was saying. I was trying to point out that my experience was that an attempt to adjust a business model to (in this case) minimize CC charges was met with a negative reaction from customers. Covering CC charges would probably mean raising prices, which is also something customers don't like, and I'm not sure what a reaction to a cash discout would be but like I said, some people are buttheads, so there likely would have been some negative reactions to that too. So, I was trying to say that excessive CC costs put businesses between a rock and a hard place; on the one hand, it increases the cost of doing business, but trying to offset or reduce that cost tends to turn customers off. (interestingly, people didn't seem to get upset if a price went up because the cost of supplies had increased, most people seemed to think that was fair enough, but for some reason folks have a tendency to think that business should just eat the cost of CC transactions and if that hurts them then too bad. Anecdotal, i know, but whatever, that's what my observation has been.)

Re: the second point: this is where my problem with free markets creeps in. I'd like to see a market where the government doesn't get involved, but the reality is that free markets frequently result in situations where one party has a lot of leverage and power and is essentially able to run roughshod over other parties. I don't like that when they do the remedy for that might be government intervention, but IMO it's better than allowing the party who has the power continue to screw the party that doesn't. However, I was mainly pointing out that in this instance if the CC companies had excercised a little more common sense (or simply accepted that their price structure is not sustainalbe for their customer base, maybe re-evaluated their own business model) they wouldn't be in a position of having to face government intervention because the companies they do business with wouldn't have a gripe.

Richard Heckler 8 years ago

I say take the tax dollars back from the banks and if two or three go under so be it.

In the first place BUSHCO was lying when saying several large banks were in big trouble. The facts after fact revealed AIG,Citicorp and Bank of America were the only ones in real danger.

Apparently BUSHCO treasury secretary told other banks THEY WOULD take some money in spite of the fact some did not want it....

Both sides of the aisle should have investigated the BUSHCO admin findings before turning the money over to the BUSHCO treasury secretary.

Mike Hatch 8 years ago

An auction house I go to used to charge a 5% fee if you paid with plastic. Got in trouble because that was against the law in the state they operated from. The got around it by switching to charging a 5% fee (in addition to the buyer's penalty they already charged) on every item sold but it was waived if you paid with check or cash.

Sounds pretty similar to me.

aldo 8 years ago

unnecessary ... MC/V already allow merchants to discount for cash and debit is less expensive than cc acceptance ... they need to do their homework and not try to legislate something that has been in play for a long time. This is ploitical grandstanding of an existing industry norm. Many gas stations have offered cash discounts for years.

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