Have you ever walked into a neighborhood restaurant, with only your debit card in hand, ready to order lunch for $7.95, but are stopped by the handwritten sign next to the cash register: credit cards, $15 minimum.
Although, this is supposed to be against the rules, small businesses often do it because of high fees.
Visa and MasterCard, the credit duopoly, charge merchants "swipe fees" for using their vast, electronic network. These fees, also called "interchange fees" - some would call it loan-sharking - are huge cash cows for the Visa/MasterCard empire. The credit card companies set the fees, and raise them at will. Merchants are forced to either swallow the cost or pass on the fees to their customers, and they complain they have no ability to negotiate with the titans of plastic.
As part of the finance reform package in Congress, Sen. Dick Durbin, D-Ill., got an amendment through the Senate to curb these fees on debit cards. He has now negotiated compromise language in the House-Senate committee that is working on reconciling the Senate and House versions of the bill. The House version, passed earlier, contained no such curbs.
Most of the opposition to curbing these fees comes from the Visa lobby. Visa and MasterCard control 80 percent of the market and fear any kind of regulation. They can use their profitable fees to push consumers to get more credit cards and take on more debt.
Retailers - large and small - favor the regulation as do consumer groups.
Georgetown law professor Adam Levitan explains that fees are charged based on the transaction amount, not the cost of the transaction to the processor. "This means that it costs a merchant $4.15 to accept a $200 debit transaction - twenty-two times as much as the 45¢ it takes for a merchant to accept a $20 debit transaction," he says, even though the processing cost is identical.
If stores see a reduction in the fees, retailer associations claim they would pass the savings onto consumers. Cynics may doubt that claim. But according to Levitan, when similar regulations went into effect in Australia, "merchants passed on significant cost savings to consumers: around $1.1 billion a year." The U.S. has the highest swipe fees in the world.
Underlying this fee fight are divisions between the credit/finance industry on one hand, and the merchant class - large and small - on the other. Retailers are seeing their profit margins shrink. It's a sluggish economy with huge numbers of unemployed. In order to survive stores need more consumers of goods. That means more customers using credit and debit cards. But the fees merchants have to pay cut into their profit margin and their ability to lure consumers with discounts.
The Merchants Payments Coalition, which according to their website represents 2.7 million "Main Street stores across America," took aim at Visa's attempt to "gut the swipe fee deal." They said card fees cost them $20 billion in the last year alone.
Visa and MasterCard pass on 80 percent of the processing fees to the banks that issued the cards. Fee caps would apply only to debit cards issued by banks with more than $10 billion in assets. That group of about 120 of the largest banks controls roughly two-thirds of debit card transactions.
This retail coalition may agree with the finance/credit industry on other issues. For example, they both oppose the Employee Free Choice Act, a bill that would make it easier for workers to organize themselves into a union and bargain collectively. But on fee regulation the retailers and the finance industry have different interests.
It underlines the fact that the "ruling class" is heterogeneous in its interests, and multi-class coalitions can be formed for this or that reform fight. And it especially underlines the splits over the financialization of the economy, over the deep penetration and almost total control Wall Street/finance capital has over other sectors of the economy. Because of this, significant ruling sectors are lobbying for government regulation!
For this fight, the merchants are aligning themselves with small businesses and their customers in calling for government regulation. Interestingly enough, a great majority of customers are working-class people who would benefit greatly from a higher level of unionization, which the Employee Free Choice Act would advance - another kind of government regulation that the merchants group opposes.