Who will pay for debit card swipe fees?

  • Article by: JIM SPENCER , Star Tribune
  • Updated: May 14, 2011 - 10:06 PM

A move by the government to limit debt card fees has set off a clash between banks and retailers.

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Rick Bohnen took a break from his Mobil station in south Minneapolis to travel to Washington, D.C., to lobby against a delay in credit card swipe fee limits.

Photo: Marlin Levison, Star Tribune

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WASHINGTON - Rick Bohnen, a service station owner from Minneapolis, recently stood outside the Capitol South subway exit, 1,100 miles from home. He wore what he called his "working man's tuxedo" -- a gray shirt with his name stitched over the pocket, an Exxon Mobil oil logo on the other side of his chest and sleeves rolled up above the elbows.

Bohnen passed out free coffee to passersby as they headed for the offices of the U.S. House of Representatives and Senate. He also gave away mugs that urged people to "Tell Congress to support commonsense swipe fee reform!"

Americans, including Bohnen, may have thought the debate over capping debit card fees was over after a law was passed last year that mandated limits. But here he stood, playing his small part in what remains a lobbying war between two colossi of political clout -- banks and retailers.

Bohnen had welcomed the new law that restricts fees he must pay banks when his customers make purchases with debit cards. So, he let a national coalition of retailers send him to Washington to pass out freebies and visit Minnesota's congressional staff in behalf of "swipe fee" limits. Those limits are supposed to move billions of dollars from banking coffers to consumer pockets by cutting retailers' business costs.

"Last year, debit and credit card fees exceeded payroll as my biggest expense," explained Bohnen, who operates two service stations in south Minneapolis and serves as president of the Minnesota Service Station & Convenience Store Association. "When you have [those fees] as your top expense, it says something has to be done."

But after 90 minutes at the subway stop, Bohnen realized the challenge ahead. As he worked, a group backed by banks and credit card companies arrived to pass out free doughnuts and a completely different point of view.

The give-and-take felt incongruous. Last December, the Federal Reserve issued a rule that would cap swipe fees at 12 cents. Currently, the fees have no limit and average roughly 44 cents per transaction. Yet instead of moving toward a July implementation, it is as if nothing had been resolved. Bills in the House and the Senate now propose to delay and study the swipe fee cap for up to two years, a move that opponents hope will kill it. Both bills await committee hearings.

"It's a bit of a civics lesson for me," said Terry Scully, the president of Target Corp.'s financial and retail services division. "There has definitely been a major battle between the banks and retailers over this."

Minnesota-based TCF Bank has taken the legal route, filing a federal lawsuit in South Dakota to block debit card limits. Since then, a major political campaign has emerged, punctuated by ad campaigns and big spending at the Capitol.

In the first quarter of 2011 -- after the swipe fee limits were law -- federal records show retailers, bankers and credit card companies collectively spent millions and perhaps more than $10 million lobbying Congress over how -- or if -- the debit card caps would apply. Among companies doing the spending were Minnesota's largest retailers (Target, Best Buy and Supervalu) as well as its biggest banks (U.S. Bancorp, Wells Fargo and TCF).

Dueling ads demonize each side. Subway riders in Washington travel to and from work under placards that suggest that Congress' "$12 billion gift to giant retailers" could cost them their debit cards.

Price controls that reduce bank revenues by billions will make it harder for some banks to offer debit cards, said Trish Wexler, a spokesman for the Electronics Payment Coalition, a group of banks and credit card companies, which paid for the ads. "Why not slow down and study this?"

Ed Mierzwinski, a veteran consumer advocate with the Public Interest Research Group (PIRG), disagreed. "This has been studied to death," he said.

PIRG and many other consumer groups support the fee cap. Mierzwinski, who has worked on the debit and credit card fee issue for six years, said he doesn't know of anyone who has changed sides. But he believes he understands the banking industry's strategy. "Delay equals killing reform."

"People on Capitol Hill are going crazy" from the pressure surrounding the issue, Mierzwinski said.

Among those applying that pressure last week were Nick Fox and Jess Nelson, a pair of St. Olaf students who run the college's nightclub. They can't afford to take debit cards because of fees. They were flown to D.C. by the same retail coalition that brought in Bohnen and 80 other small business people from across the country. Fox and Nelson accompanied Bohnen to speak to congressional staffers about the need for swipe fee caps. What they heard back troubled them.

"They dodged questions and offered ominous counterpoints," Fox said.

Bohnen has a theory about the ambivalence. "I don't think they want to get involved because it puts them between the banks and the retailers."

Republican Rep. Chip Cravaack met personally with Bohnen, Fox and Nelson. He was "a class act" and "open-minded," said Bohnen. But he was also noncommittal. "He said we should set up a round table with banks and retailers."

A full-page ad in the Star Tribune on April 21 praised Minnesota's Democratic senators Al Franken and Amy Klobuchar for taking sides, but also tried to lock them into positions. "While Big Wall Street Banks are lobbying Congress to stop swipe fee reform," the ad proclaimed, "Senators Franken and Klobuchar are standing up for Minnesota's small businesses."

The ad was paid for by the Minnesota Retailers Association, the Minnesota Grocers Association and the Minnesota Service Station & Convenience Store Association over which Bohnen presides.

Franken opposes a bill introduced by fellow Democrat Sen. John Tester of Montana that would delay debit card fee limits for two years. Klobuchar's position is much more cautious.

"There are ongoing discussions in Congress and at the Federal Reserve about the implementation of the new rule and I am hopeful these concerns can be resolved without a two-year delay," she said in a statement. "I was not aware of the ad until it ran and, while it is always nice to be thanked, I didn't like the negative language about the banks."

In the House, a bill similar to Tester's would delay implementation of swipe fee limits for one year. Republican members of Minnesota's congressional delegation did not respond to requests for comment.

Democratic Rep. Keith Ellison of Minneapolis said he is "not convinced why this needs to be delayed. I need someone to explain." Democratic Rep. Tim Walz will take a wait-and-see approach, spokeswoman Sara Severs said.

One thing Walz and others wait to see is if swipe fee limits hurt small community banks. That is where opponents of caps have gained their greatest political traction. Caps now apply only to banks with more than $10 billion in assets. But the Electronic Payments Coalition's Trexler insists that retailers will find a way to force consumers to use debit cards issued by big banks, taking crucial revenue from little banks.

"We have no ability to differentiate cards from big or small banks," replied Target's Scully.

Indeed, he added, to do so is against the law.

Jim Spencer • 202-408-2752

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