Wogan S. Badcock III’s family has been selling furniture in the Southeast since 1904. Business is good: Badcock &More has grown to 300 stores in eight states.
But trouble is ahead – not from business conditions but from, of all places, Congress. Members are considering repealing the Durbin Amendment to the Dodd Frank law that brought competition to the business of banks processing debit card purchases for merchants.
Before reform, Visa and MasterCard price-fixed the fees for this service at outrageous levels because they dominated the market. Big banks took those price-fixed fees rather than competing on price.
Visa and MasterCard also muscled out competitors. It was a rigged, murky business, the utter opposite of the free market that created that largest economy in the world.
Instead the market raised prices on everything from gas to groceries for consumers, hurt small Main Street businesses and cost jobs at a time when the nation needed them badly. Under reform, Badcock’s stores shaved $1 million off their “swipe fees” last year. That win saved his business and his customers money.
Yet you may have read recent “opinion” pieces by think-tank researchers, hired consultants and front groups for banks on why we should squash competition in this rigged market and go back to price-fixing. Seems like an anomaly, doesn’t it? Why wouldn’t people who usually champion free markets welcome a more competitive, fairer market, the kind that built our economy into the largest in the world?
These writers seem to have fundamentally or willfully misunderstood the legislation that opened up this murky business. And now they’re calling for Congressional repeal of this reform, which would benefit nobody but the country’s largest banks.
But Congress understood perfectly well these pernicious “swipe fees” when it introduced those modest reforms six years ago. From a broken market, reform gave banks an incentive to set their own prices and compete. If they don’t compete, the price-fixed fees are limited. If they compete, they can charge as much as they’d like.
And reform also opened the market to competition by prohibiting Visa and MasterCard from blocking competing networks from having a chance to process transactions.
Now, there must be at least one other network available to compete with those two giant companies for each debit transaction.
Since reform, according to a prominent economist, consumers have saved billions of dollars. Reform helped small Main Street businesses survive in tough times, kept jobs from disappearing and boosted the entire economy.
There are merchants like Badcock from around the country who struggle every day with these outrageous swipe fees – especially on credit cards, which haven’t been touched at all by reform. All these swipe fees are merchants’ second-largest operating cost after only labor.
“Do we really want to load down our small retailers with these outlandish swipe fees,” asks President Steve Williams of Bobby & Steve's Auto World in Minneapolis, “at a time when every job assumes even more importance? We can’t afford to lose what progress we have made. The cost in jobs, hardships to families and small businesses, and the dent in our economy, would be just too great.”
Or listen to Rahim Budhwani, CEO of Encore, which operates eight convenience stores in the Birmingham area. “The banks and credit-card companies have been complaining for years because they don’t want to compete with each other on price like other businesses do,” says Budhwani, whose own profit margins are razor-thin. “Repealing debit reform would be bad for businesses like mine and bad for our customers – who will ultimately pay a lot for it if the bankers get their way.”
Debit reform brought some competition to this market for the first time. It helped small businesses and their customers. It’s time now to reform credit- card swipe fees – not roll back the progress we’ve already made.