Evening Sun (PA), 04/08/2011
It can be hard to remember what life was like before debit cards.
Paying with “plastic” is so common now that many people seem to have given up on cash entirely. Just notice how many people whip out their debit cards to pay for a $6 fast-food meal. Or check the lines at the convenience store, with people handing over the debit card to buy a bottle of green tea or a pack of cigarettes.
But did anyone really think those debit cards were free? Even the ones the bank advertises as being without fees?
The truth is, none of them are free of fees. And over the past few weeks, with debit cards suddenly in the news, we’ve been hearing some hard numbers about just what all that convenience costs us.
Every time a customer swipes a debit card, the retailer making the sale must pay a fee to the bank that issued the card. Those interchange or “swipe” fees are 1 to 2 percent of the sale, for an average of 44 cents per transaction.
Imagine if every time you made a purchase, the sales slip contained a 1- or 2-percent charge labeled “swipe fee.” Sort of like a sales tax, but one that goes straight to your bank.
Those fees, of course, are not really charged to customers. They are charged to the merchant. But without a doubt, the nearly $50 billion that the retail industry pays to banks each year is now built into everything you buy.
So, swipe fees are a significant cost even to those who still carry a few bucks in their wallet, to those who hand over a $10 or $20 bill at the cash register.
All those fees, in fact, cost the average American household an additional $427 per year, added on to the price of goods, according to the National Retail Federation.
Locally, we had another indication just the other day of the fees’ impact, when the Gettysburg Foundation cited rising operation costs as a reason to increase admission charges for the Visitor Center Museum and Cyclorama. Foundation officials cited the cost of processing credit and debit cards as one of its major increases.
But now the banks are facing a July deadline to drastically cut swipe fees, with a flat-rate cap of 12 cents for most transactions. Unless, that is, the current move in Congress to delay those caps for two years is successful.
With the move to delay gaining steam, both sides are bringing out their best arguments. Banks say they’d lose 70 to 80 percent of the revenue they now get from swipe fees, necessitating increased fees on other services. Already a couple of major banks have announced they will institute fees just for having a debit card.
But in the long run, we have to agree with the retailers and consumer groups who say the current swipe fees bear very little relation to what it costs banks to provide the service. And maybe retailers wouldn’t slash $50 billion from prices, but some of those savings might very well go into hiring.
As for the banks’ threats to up their fees on other services, we trust that competition - especially from online financial services - would keep new fees under control.
We also trust that the nation’s ongoing disgust with the banking industry will keep Congress from intervening. That national sentiment was probably the only reason the original reform measure passed last year.
At one time, there was a very different proposal on the table, one that would have levied swipe fees directly on the buyer, with the cost detailed on each sales receipt.
That might have been a better idea, actually. Making swipe fees so transparent would at least remove the conceit that debit-card use is “free.” That plan also would have allowed customers to opt out by using cash.
But that proposal didn’t get very far, probably because too many of us have grown too accustomed to simply handing over the plastic.
So we’ll continue to pay for that convenience. But Congress should stick to the July 21 deadline. Let your legislators - including Sen. Pat Toomey, who signed on as a co-sponsor of the delay bill - know that you don’t want any more breaks for banks.
And the next time you hand over the plastic, remember that there’s no such thing as a free swipe.
http://www.eveningsun.com/ci_17793270