Harbison: Washington Needs To Remember Small Businesses When Considering Fee Changes
The following is a guest Op-Ed from Senator Ed Harbison:
As the Senator from the 15th District of the Georgia General Assembly for almost 20 years, Chairman of the Senate Committee on State Institutions and Property, and a ranking member of the Senate Committee on Banking and Financial Institutions, I have made it my priority to empower our communities. My district is home to Synovous – a major bank in the State of Georgia – and many small businesses, small banks and credit unions. With that, I have a vested interest in any policy that could affect the small business and banking communities.
Small businesses have long been an integral part of Georgia’s economy, providing goods and services to communities everywhere. I’m so glad that Congress has recognized the value of small businesses, allotting $25 billion in small business investment in the recent reconciliation bill. This is exactly the kind of policy that I applaud.
I know that Georgia’s leaders in Congress share my commitment to representing the best interests of our constituents, which is why I hope to stand with the small banking community by bringing their awareness to a harmful policy that would limit credit accessibility for many consumers. Right now, big box stores are lobbying members of Congress to expand an old debit card policy to credit cards so they can increase their revenue at the expense of everyday people.
Congress passed the Durbin Amendment in 2010 to reduce debit card processing costs for merchants so they could lower costs for customers. The amendment capped the interchange fees that stores pay to process debit cards and added a routing mandate for debit cards so that merchants could choose which payment networks to use to route their transactions.
The idea behind Durbin’s amendment was that by lowering debit card processing costs for retailers, they could pass these savings down to consumers. Unsurprisingly, this did not happen. A 2014 study from the Federal Reserve Bank of Richmond found that almost 99 percent of retailers either raised prices or kept them the same rather than lowering them after the Durbin Amendment passed.
Banks immediately saw massive interchange fee revenue losses from the fee caps and the routing mandates that forced payment networks to lower interchange rates to compete with cheaper, less secure networks. To overcome the loss, banks simply started charging small businesses the full 22 cent cap for every single transaction, causing harm to our businesses that heavily rely on small purchases. For some small retailers, small-ticket interchange fees doubled or tripled from what they had previously paid. This is why so many local stores had to add purchase minimums and extra fees for customers using debit cards or stop accepting debit cards altogether.
Despite the terrible effects of the Durbin Amendment on small businesses, big box retailers are now coming for our country’s massive credit card market. Big box stores are only pushing for routing mandates this time, but routing mandates and fee caps ultimately have the same impact on consumers. They drive up banking costs and take away banking access while giving big retailers a payday. Just like before, banks would seek to make up for even more lost revenue by charging more for every credit card transaction, making even small credit card purchases an expensive cost. This would create an estimated wealth transfer of $40 to $50 billion per year from our small businesses and customers directly to big box stores.
Moreover, small businesses would likely be forced to add the same sort of purchase minimums and extra fees to credit cards that they added to debit cards. Less customer incentive to use card payments would mean that small retailers would also lose out on the secure and efficient transactions afforded by credit cards. According to Business Wire, it costs retailers up to 15.3% to process and handle cash purchases. In comparison, The Ascent found that card networks charge less than 5% for these credit card transactions.
While community banks and credit unions are supposedly exempt from the Durbin Amendments cap on interchange fees, their interchange revenue has decreased significantly since enactment. More than a decade later, it is clear that the Durbin Amendment has hurt consumers, small businesses, and financial institutions by reducing choice, increasing costs, and reducing access to credit.
With over 1 million small businesses in Georgia, we cannot sit idly by as large retailers lobby to extend the Durbin Amendment routing mandates to the credit market. We have to listen to our communities when making policy decisions, so we make sure our laws work for all Georgians.
Senator, 15th District
I appreciate discussion of this issue, and am a supporter of community banks and credit unions. A little forgiveness for lack of expertise in this area, but perhaps good to clarify– my confusion is that the argument seems that the debit card processing fees were capped, so market players raised fees to the cap? And if we cap credit card fees, they’ll also raise to cap?
If that’s the case, then isn’t the issue that the cap is just too high? Because without a cap, they could conceivably raise fees ad infinitum, and those seeking to maximize capital will do just that. Also, as time moves forward, the relative % of the cap would fall, absent deflation, and thus becoming an easier burden and more effective cap perhaps. Thus, I remain confused on the argument, and why capping the fees for all banks incl the largest and supposedly too big to fail would impinge growth of the smaller banks and CUs.
If the suggestion is that bc caps are being maxxed out, that purchases and small biz transaction volume will suffer, I would suggest again- that seems to be an ineffective size of cap, not a good reason to wipe out altogether. No one wants to have a policy that allows 10% fees to be added to costs just bc the largest bank need to pad their books.
Again, not an expert, so clarifications could be useful, thanks.