Credit card swipe fee rules would hurt small businesses

Twelve years ago, Sen. Dick Durbin (D-Illinois) introduced a last-minute amendment to the landmark Dodd-Frank Wall Street Reform Bill. The amendment, intended to save retailers money so they can lower prices for customers, imposed regulations such as a 22-cent cap on debit card swipe fees and a money order routing for processing debit card transactions.

The amendment helped big-box stores earn $90 billion in additional revenue, but actually did more harm than good to consumers and small retailers.

First, the Durbin Amendment didn’t even lower prices for US consumers. Even after the big box stores got all that extra cash, they kept their prices the same or had the audacity to raise them. The Richmond Federal Reserve studied the impact of the amendment on consumer prices a few years after it was passed and found that only about 1.2% of retailers lowered prices.

Small retailers have been hit hard by the Durbin Amendment. Banks immediately started losing swipe fee revenue and tried everything to recoup those losses, even charging the 22-cent cap on all debit transactions, regardless of size. Another Federal Reserve Bank of Richmond study found that most swipe fees hit the 22-cent cap, which tripled small purchase swipe fees for some small businesses. For many small retailers, this flat rate of 22 cents was much higher than the per-transaction percentage they were accustomed to paying.

Small debit purchases suddenly became a high cost, forcing some small businesses to stop accepting debit cards or pass the costs on to customers. I’m sure we’re all familiar with those little signs that have popped up in our favorite stores advertising a minimum purchase or additional charge for debit card transactions.

If we allow the big box stores to get what they want and extend the Durbin Amendment to credit cards, we will see even worse impacts than before.

Again, banks will lose billions and try to recoup them by charging small businesses the full swipe fee cap to process every credit card purchase. In a recent study by economist Angelino Viceisza on the potential impacts of Durbin Amendment policies on credit cards, he concluded that regulating swipe fees would “benefit large corporations while negatively impacting small enterprises”.

Banks will also reduce consumer benefits and restrict access to credit to save money, indirectly hurting small businesses. After reviewing previous evidence from countries like Australia and Canada, Viceisza concluded in his study that swipe fee caps in the U.S. credit market would likely reduce credit card rewards, make credit more expensive, would increase fees and interest rates and, overall, be less conducive to credit card adoption and spending.

A 2018 study by Shift Processing found that consumers spend up to 83% more when using a credit card instead of cash, meaning small businesses could lose out on those extra expenses.

If passed, this proposal will generate between $40 billion and $50 billion in additional profits for big box stores each year at the expense of consumers and our small businesses. We must reject any policy that will harm our small businesses.

Matthew Franko is co-owner of Furniture City Creamery and owner/broker of Valley City Group in Grand Rapids.