Two Views, Same Regulation

by Sarah Grotta 0

With the discussion regarding the repeal of Dodd-Frank and Regulation ii that controls pricing on debit cards, two articles were published that summarize the opposing views. One view comes from a 7-Eleven franchisee and another from an executive director of the Law and Economics Center at George Mason University’s Antonin Scalia Law School writing with a vice president of research at the Reason Foundation.

First, the views on debit card processing “swipe fees” from the small business owner as published in Morning Consult:

Debit card swipe fees – the percentage of the purchase price that banks charge retailers and ultimately consumers to process a debit card transaction – had ballooned to my second-highest expense after paying my employees. Over the past 10 years, I had seen big banks make $50 billion a year on swipe fees, a 300 percent growth. Especially on small purchases of drinks and snacks – 7-Eleven’s specialty – Visa and MasterCard were making more off of my business than I was.

As a result of out of control debit card swipe fees, I had to consider raising prices on goods, just to pay the big banks

And from the researchers’ vantage point as published in the Wall Street Journal:

Durbin asserted at the time that “every single Main Street business” would benefit from lower costs, and that they would pass those savings on to consumers in the form of lower prices at the register. But as we (with co-author Geoffrey Manne) demonstrate in a new report for the International Center for Law and Economics, it hasn’t worked that way. While big box retailers and their shareholders have managed to pocket more than $40 billion in cost savings so far, most Main Street businesses and the poorest American households have suffered.

First, costs for most retailers haven’t fallen. A 2014 study by the Richmond Fed found that only 11% of merchants surveyed had seen their card-acceptance costs fall as a result of the Durbin Amendment. Three times as many merchants— mostly small businesses and those making small-ticket sales—reported increased costs. Contrary to Mr. Durbin’s promises, only 1% of merchants reported that they had reduced their prices, while 20% raised them

Overview by Sarah Grotta, Director, Debit Advisory Service at Mercator Advisory Group

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