Pub. 6 2016-2017 Issue 5

6 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S A Word From CBA... Retailers are Swiping Customers’ Cash Thanks to ‘Swipe Fees’ Price Controls A s usual, government price controls – dictating that one business sell services below the cost of producing them to another business – produce inequities. When lawmakers implemented the Durbin Amendment to set rates for debit interchange transactions - the fees paid to use a debit card as payment big box retailers promised to pass along the savings to their customers. American consumers aren’t getting what was promised (lower retail prices), small businesses see increased expenses, the remarkably consumer-convenient card payment systemwill stagnatewithno incentive to further innovate tomorrow’s conve- niences, andnowsomebankandcredit unioncustomers face fees not needed when big box retailers pay their fare share. In short, consumers are subsidizing these big chain retailers. The Durbin price controls let big box retailers cash in. It has lined their pockets with more than $8 billion in profits annually since2011. For example,HomeDepot leadership, during anearn- ings call with investors that same year, said the regulation was expected to add $35 million annually to the store’s bottom line, theAtlantaBusinessChronicle reported. Therewasnomentionof savings that would be ushered to customers during that call and no evidence HD has reversed course from pocketing the money to returning it to customers as promised. They aren’t alone. Retailers benefit greatly from the existing payments system. Theyget secure, guaranteedpayment, reducedoverheadexpenses, fast transaction speed (so retailers need fewer personnel) and lower fraud cost. They clearly find this superior to accepting checks fromcustomers – that were costlier to handle and created substantial fraud losses. Merchants don’t want to pay their fair share for a service that benefits them – and more importantly their customers. Large retailers have enjoyed lower debit card prices, but small retailers have actually seen their prices go up, losing their previously lower card acceptance prices. The one-size Durbin approach doesn’t fit at all and small businesses and consumers lose from the price controls. Banks now lose money on every debit transaction – rev - enue that banks used to provide low-cost accounts to cus- tomers, fight fraud and maintain and innovate the efficient U.S. payments system. While a fake exemption to the Durbin Amendment exists for banks smaller than $10 billion, the exemption does not work. Having two prices for the same product doesn’t work. The market always goes to the lower price. Any merchant would tell you that. The truth is: The Durbin Amendment has mandated com- petitive inequities in the marketplace and has not lowered prices for the consumer. They and small businesses are the real victims of the Durbin Amendment. Government interference and price fixing has led to reduc - tion or elimination of debit cards rewards programs and, in some cases, higher fees for basic banking services for consum- ers despite intense bank competition. Efforts are underway by banks and credit unions, alike, to repeal the Durbin Amend- ment and restore market pricing. Studies at the University of Chicago and GeorgeMasonUniversity have found that big-box retailers have enjoyed a boon while underbanked consumers have paid a real price. A “George Mason Law & Economics Research Paper filed in 2014 reported, “We estimate that as a result of the Durbin Amendment, there will be a transfer of $1 billion to $3 billion annually from low-income households to large retailers and their shareholders, which have been the primary beneficiaries of the Durbin Amendment to date.” There are costs to bear for a system that affords convenience and security 24 hours a day, 7 days a week and 52 weeks a year, at millions of locations worldwide. This issue is a battle about who should foot the bill. Banks believe the cost should be set by the highly competitive market for banking services and customers should not be the ones to pay the price. The Durbin price controls should end. While we’re discussing this, we also believe that the party that loses consumers’ financial data should pay the costs as - sociated with that breach, whether those costs are incurred by consumers or third party businesses. These breaches often result in identity theft with terrible consequences for consumers. We think the party that loses the data – whether a bank or a retailer – should reimburse others. That isn’t the case now and it is only fair. n Don Childears President and CEO Colorado Bankers Association