Retailers face a May 28 deadline to decide whether to accept a proposed $7.25 billion federal antitrust settlement over the $30 billion in credit card swipe fees charged by Visa and MasterCard each year. NRF explained retailers’ options in a recent conference call.
NRF went to court to block the settlement last fall because it did not bring swipe fees under control and would take away retailers’ rights for future challenges. The proposal, nonetheless, received preliminary approval, and retailers are currently receiving official notices of the proposal.
NRF opposes the settlement because it does little to address high fees charged in the past and nothing to prevent them from rising higher in the future. The $7.25 billion figure represents less than three months’ worth of swipe fee collections despite the eight-year period of the lawsuit, and the settlement fails to reform the cartel-like system where Visa and MasterCard set a rigid schedule of swipe fees all banks agree to follow while refusing to negotiate with merchants. The proposal does nothing to disclose the hidden fees or otherwise create transparency that would encourage competition. And retailers would face a long-term ban on future lawsuits over swipe fees, effectively allowing card industry practices to continue unchallenged.
In a separate lawsuit involving debit cards rather than credit cards, NRF is still waiting for a ruling from a U.S. District Court judge in Washington. Attorneys for NRF argued during a court hearing that the Federal Reserve did not follow rules set by Congress when it established 2011 regulations capping debit swipe fees. NRF said the Fed considered costs that Congress said could not be passed on to consumers, and that the 22-cent cap was twice as high as it should have been. The NRF lawsuit asks the court to order the Fed to recalculate the cap under the rules set by Congress.
Swipe fees are a percentage of the transaction that banks take from retailers each time a credit card is swiped to pay for a purchase, averaging about 2 percent. Banks also took a percentage of the transaction for debit cards until October 2011, when they were capped at a flat fee of about 22 cents per transaction under the Dodd-Frank Consumer Protection and Wall Street Reform Act. Before adoption of Dodd-Frank, combined credit card and debit card swipe fees had tripled over the previous decade to reach an estimated $50 billion a year.
The exact amount of a swipe fee can range from about 1.5 percent for an ordinary card to 3 percent or more for premium rewards cards, and also varies according to a merchants’ card volume and other factors. The schedule of fees is set centrally by Visa and MasterCard, with all banks that issue the cards agreeing to charge the same fees. Banks do not compete over the fees and refuse to negotiate with retailers no matter how large. NRF has argued before Congress that the practice is a violation of federal antitrust law the same as if retailers were to collude on the price of specific pieces of merchandise.
Why it Matters to Retailers
Many retailers have cited swipe fees as their second or third highest cost behind salaries and employee health benefits. With retail industry profits averaging only about 2 percent, there is no room for retailers to absorb the expense, so swipe fees are passed on to customers in the form of higher prices. In addition, card industry contracts and practices have required that merchandise be priced at the credit card price—including the swipe fees—and have made it difficult to either show the fees to customers or to offer a cash discount. By NRF estimates, swipe fees cost the average U.S. household $427 a year and hurt retail sales because consumers buy less when prices go up.
NRF Advocates for Swipe Fee Reform
NRF has led the retail industry’s fight over swipe fees for a number of years, seeking legislation that would introduce transparency and competition that would bring fees down to a reasonable level. In 2010, NRF succeeded in convincing Congress to address debit card swipe fees in the Dodd-Frank bill, resulting in the 22-cent cap mentioned above. Credit card fees as such were not addressed, but Dodd-Frank barred card companies from interfering in cash discounts and allowed retailers to set a minimum purchase for credit cards. NRF is still pursuing legislation that would increase transparency by requiring card companies to clearly disclose the fees charged by each type of card and boost competition by ending Visa and MasterCard’s cartel-like practices in setting the fees. NRF chairs the Merchants Payments Coalition, which was formed with other retail trade associations to address the swipe fee issue.