Another major dispute over interchange fees could take place soon, this one centering on the swipe fee retailers pay on credit card transactions.
An antitrust suit is pending between five million retailers and Visa, MasterCard, and 13 large banks, including Citi, Bank of America, Chase, Capital One, U.S. Bancorp, and Wells Fargo. The retailers claim banks and the payment systems have unfairly colluded to increase the interchange fee retailers pay on credit card transactions.
Fee Could Be Slashed
The amount each retailer pays as a swipe fee varies widely, but the industry average is approximately 2 percent. The antitrust suit could cut that figure by three-quarters, down to 0.5 percent, costing the banks and Visa and MasterCard billions of dollars in lost income.
The “Durbin amendment” to the Dodd-Frank financial regulatory bill went into effect last October 1, cutting the interchange fee on debit card transactions from an average of 44 cents to no more than 21 cents (plus 0.05 percent of the transaction, with the possibility of an additional cent if banks comply with fraud prevention procedures). Somes banks tried to make up for this lost revenue by implementing a monthly debit card fee, but they backed down in response to consumer outrage.
Consumers Could See Impacts
If the retailers win this antitrust suit, it could have a big impact on consumers:
- Banks would lose billions of dollars while already having suffered significant cutbacks in revenue. Whenever banks lose revenue in one area, they try to make up for it in another area, and that always comes at the expense of consumers. Banks could implement higher fees, new fees, and increases in credit card interest rates.
- A significant decrease in credit card reward programs is likely. The lucrative cash-back and airline mile rewards will likely decline. Most banks eliminated debit card rewards when the Durbin amendment passed. The same could happen with credit card programs if retailers win this suit.
- A decrease in attractive balance transfer offers is probable. Currently, credit card issuers are offering 0 percent interest rates for extended periods of time in order to lure customers from their competitors. The Citi Platinum Select card offers 0 percent for 21 months; the Discover More card offers 0 percent for 18 months; and the Slate from Chase card offers 0 percent for 12 months with no balance transfer fee. If retailers win their antitrust suit, expect credit card issuers to scale back these offers.
- On the positive side, prices at the store level could decrease. Retailers claimed the Durbin amendment would lead to lower prices because they would no longer have to pay the higher swipe fees on debit card transactions. It is difficult to see whether this actually took place, but retailers may face more pressure from consumer groups to cut prices if the interchange fee on credit card purchases is also slashed.
Bill Hardekopf is CEO of LowCards.com, which tracks more than 1,000 credit cards, and author of The Credit Card Guidebook.
