Battle Over Card Swipe Fees Offers Little To Consumers
FARAI CHIDEYA, host:
I am Farai Chideya, and this is TELL ME MORE, from NPR News. Michel Martin is away.
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But first, TELL ME MORE's weekly look at issues of personal finance. Today, we're talking about the fees associated with an action so common, many of us don't give it a second thought. Swipe fees are the charges that stores, restaurants and service providers pay the banks whenever you swipe your debit or credit card.
And swipe fees earn banks billions of dollars each year. Those institutions are fighting mad over a proposed rule change by the Federal Reserve that would cap the fees. Consumer groups like the proposal. Banks say do it, and we'll have to find other ways of making up the revenue. What does this all mean to consumers? We've called on personal finance writer Michelle Singletary to find out. She's writes the weekly "Color of Money" column for The Washington Post. And she's here now in our Washington, D.C. studio.
Thanks for joining us.
Ms. MICHELLE SINGLETARY (Personal Finance Writer): Good to be here.
CHIDEYA: So, put this in context for us. You swipe your card. You're paying for groceries at the supermarket, let's say. How much of what you pay is considered a swipe fee, the money that the supermarket passes on to your bank?
Ms. SINGLETARY: For a debit card, about 1 to 2 percent, and it could be 2 to 3 percent for your credit card. So whatever your purchase is, about that percentage is going to go to the network that's processing it, and they pass that on to the banks.
CHIDEYA: You know, I've noticed at the gas station in my neighborhood, that there's actually a different price for paying with debit and credit. So is this why?
Ms. SINGLETARY: That's why. That's right. It used to be way, way back, when taking certain credit cards were more expensive because of this swipe fee. But that's exactly right, because the merchants pay a different price.
CHIDEYA: You know, many consumers see fees like this as just the price you pay for having the privilege of walking around with a little card instead of a fat bundle of cash, or the fee that you pay for, you know, living on credit when times are tight, which I know you're not a fan of. So would there actually be a consumer outcry if things change or if they don't?
Ms. SINGLETARY: I think if this goes through, the swipe fee, and there's a cap on them, the bankers are promising that it's going to cost you more to use your debit card. Your free checking may not be free anymore. They're going to find other ways to increase your revenues, and that's, I think, when consumers are going to go, whoa, what happened here? That's why need to weigh in and really be a part of this controversy. And it may come to be that people who pay with cash are going to make out, as opposed to people who use their debit card.
CHIDEYA: Going back to the legislation, there's this bipartisan move to introduce legislation to delay implementation of this rule by two years. Is it fair to say this is a sign of how much lobbying power the financial sector has with Congress?
Ms. SINGLETARY: Oh, it's definitely fair to say that that's where this is coming from. I mean, we want to study things to death. We know that these fees are onerous for the merchants, and particularly for small merchants. I mean, maybe small merchants would not like to accept debit or credit cards, but they know if they don't, customers are not going to spend.
So I think it is a good rule that they're looking at capping it. Rather than doing away with it, make sure that they're getting their money's worth. I mean, certainly, if they're accepting our debit cards, there's a process behind that. They ought to get money for that. But the fees ought to be in line with what it actually costs them to process this payment, but not what they're charging now.
CHIDEYA: What do you see ahead in general in terms of how consumers interact with issues like this? Do you see people speaking up more? Or in times of economic crisis, do you see people just kind of being, like, whatever, yeah, I can't do anything?
Ms. SINGLETARY: Right. I think people will not start speaking up until they see those increased fees either being charged for the debit card, charged per debit card transaction, or there's no more free checking. And, you know, by that time, it's kind of too late. The rules are in place. But I hope that it will spur consumers to realize these issues and read the paper and get involved, because the Fed was taking public comment from consumers.
So you can't just sit back and let these issues be handled by the lobbyists. You should become more active. You should be reading the paper or listening to NPR so that you know what's going on, because this directly impacts your pocketbook.
CHIDEYA: So, what can consumers do?
Ms. SINGLETARY: You know, I think we should start a revolution across the country and go back to that thing, you know, that paper money that you probably haven't seen in a long time. You know, that actual paper with, like, presidents' faces on it, you know...
(Soundbite of laughter)
Ms. SINGLETARY: And pay with cash, because there's a couple things that happened. People think the debit card is the same as paying with cash, and it's not. You know, studies show that when you use plastic, credit or debit, you spend more. So if we go back to using cash, you're going to reduce your spending. So even if the banks go through with their threats to increase it, you're still going to end up saving money because you're going to start spending less.
Now, when I wrote this, you know, I get the occasional, oh, we're all going to be mugged if we use cash. I don't exactly think that there's going to be a mugger on every corner thinking, you got some cash? I know you should have a debit card but you got some cash? I don't think that's something that's going to come through.
CHIDEYA: Michelle Singletary is a columnist for the Washington Post. She joined me here in our Washington, D.C. studio. And thanks again for coming in.
Ms. SINGLETARY: You're welcome.
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