Washington Retail Insight

Merchants Will Continue to Accept All Debit Cards

By J. Craig Shearman
Washington Retail Insight
May 4, 2011

Merchants are telling Congress their policy of accepting debit cards from both large and small banks alike will not change once swipe fee reform takes effect this summer.

“We are writing to make clear that we have no contractual or practical ability to treat debit cards issued by small financial institutions or credit unions differently than those issued by large institutions,” merchant groups said in a letter to Senate Majority Whip Richard Durbin, D-Ill., in a letter this week. “Our member companies are committed to customer service and it is not in their interest to discriminate against debit cards that so many customers carry.”

Even if small-bank cards carry higher fees than those from big banks, retailers will accept the cards rather than risk losing the sale, and the fees will still be lower than those on credit cards, the letter said.

The letter was signed by NRF, the National Council of Chain Restaurants and 18 other associations representing merchants ranging from retail stores to gas stations, movie theaters, supermarkets, pharmacies, college book stores and truck stops, among others.

Durbin is the sponsor of swipe fee reform legislation enacted last year that will require the biggest banks’ debit card fees to be “reasonable and proportional” to banks’ actual cost of processing the transactions beginning July 1. The Federal Reserve has proposed lowering the fees from their current level of 1 to 2 percent of each transaction to a flat fee of no more than 12 cents per transaction for large banks that adhere to fees set by the card companies. Banks that set their own rates would be free to charge any fee they believe the market would bear provide that they do so independently. The move could reduce the current $20 billion a year in debit swipe fees by about 70 percent, or $1.2 billion a month.

Financial institutions with less than $10 billion in assets are exempt from the caps, meaning small and mid-size banks will continue to charge current fees.

The banking industry has made repeated claims that retailers will reject cards from smaller banks once fees for big banks are lowered, and are trying to have swipe fee reform delayed by two years. But this week’s letter explained that Visa and MasterCard’s “Honor All Cards” rules require merchants to accept all Visa/MasterCard debit cards regardless of which bank issues the cards. Merchants are also prohibited from pricing goods differently based on the financial institution that issued a card, and face fines of $5,000 a day or higher for violations.

As a practical matter, merchants could not easily discriminate against small-bank cards even if they wanted to because there is no easy way to distinguish between big and small banks at the cash register, the letter said. In many cases, customers swipe the cards themselves and the face of the card is never seen by the sales associate.

© 2011 National Retail Federation