Don’t let Wall Street Hijack Financial Reform
It’s been almost a decade since the Wall Street meltdown drove the nation’s economy into a ditch. In its aftermath, Congress passed a series of financial reforms (Dodd-Frank) designed to prevent the kind of recklessness in the financial services industry that wiped-out people’s 401ks, decimated property values and cost millions of workers their jobs. While our economy has come a long way since then and millions are back to work, many families and businesses have never fully recovered. Now is the right time and opportunity for Congress to revisit those reforms to ensure that the effort to prevent another collapse isn’t choking growth for community banks and credit unions who are vital to our economy.
But as the House Financial Services Committee begins debate this month on a series of proposals designed to reform the nation’s financial laws, big banks are demanding a repeal of swipe fee reform. These reforms are vital to every merchant in America. Including them in financial reform is a poison-pill that will hijack legitimate efforts to reform our nation's financial laws.
Swipe fee reform made two important changes when enacted earlier this decade. First, it capped the ridiculous fees banks were charging merchants for accepting debit cards. These fees were increasing exponentially for retailers, and were erasing profit margins for retailers and restaurants across the country. In addition to stopping banks from fleecing, swipe fee reform also required merchants have a choice of two companies to process debit card transactions in an effort to finally introduce competition into the marketplace. Let’s be honest, banks only like competition when they’re competing against one another to see who can raise fees the highest. Giving retailers the ability to select which network their transactions run on is real competition, and it has not only benefited merchants but its helped smaller financial service companies compete with the largest players in the market by offering the same service at a lower price.
Lobbyists for the world’s largest banks have many dubious claims in their attempt to roll back swipe reforms; the biggest whopper among them is that retailers have somehow benefited from a “billion dollar windfall” since the passage of swipe fee reform. This mythical pot of gold simply doesn’t exist. Competition in the retail sector has never been more intense, and retailers across America are operating on razor-thin profit margins. Let’s be frank, anyone that turns on CNBC or reads a newspaper knows that retailers are in a transformational era that is resulting in consolidation, store closings, and unfortunately in some cases, lost jobs.
But the winner in all this creative destruction has ultimately been the consumer. Armed with technology and choices that didn’t exist a decade ago, consumers can buy just about anything from anywhere — and hunt for the best price in the process. Retailers compete on price every single day, online and in their stores. When operating costs go down because excessive fees are reined in, that savings goes to the consumer in the form of lower prices. In the real world outside Wall Street, that’s how true free market competition works. If banks go back to charging excessive fees every time a customer swipes their card, those fees will ultimately mean higher prices for the consumer. It’s basic economics, and despite their rhetoric about pots of gold, the big banks know it.
Swipe fee reform is important to every merchant in America. From large brick and mortar retailers to e-commerce platforms to corner coffee shops, lower fees from banks means lower prices for consumers. Repeal of reform will give banks free rein to cut off payment competition and go back to gouging merchants with outrageous fees with every swipe at the register.
The choice for House Republicans is clear. Congress can enact meaningful reforms that give community banks more freedom, and open up lines of credit to small businesses and startups that have had a harder time accessing capital since the financial crisis. These are worthy goals, they enjoy bipartisan support in both chambers; and they would provide a needed boost for many communities that have been left behind in our economic recovery. But Including a repeal of swipe fee reform in the CHOICE Act — or any other financial reform vehicle — means a nasty fight with every merchant in American and all but guarantees no bill gets to the President’s desk. That’s a loss for those businesses that genuinely need regulatory relief from Washington, and a missed opportunity for Congress to prove that they are looking out for the little guy and not the world’s largest banks.
Austen Jensen is Vice President of Government Affairs for the Retail Industry Leaders Association