The numbers don’t lie – debit reform has saved consumers billions

Swipe reform: The big picture

Even with the Durbin Amendment in place, retailers and customers still fork out over $50 billion a year in swipe fees to the big banks. For some businesses, swipe fees are their highest paid employee. 

A 2016 NRF survey found that 89 percent of consumers say the Federal Reserve’s swipe fee limits should not be undone. Further, 84 percent say swipe fees should be set on a competitive basis.

With Congress poised to take up legislation that could repeal landmark debit card swipe fee reforms that took effect half a decade ago, banks and the card industry have been busy spreading claims that retailers have failed to share the savings with consumers.

But a simple look at the numbers shows that those claims are simply not true.

To start, the definitive study on the issue was conducted by respected economist Robert Shapiro, who found that merchants saved $8.5 billion during the first year of debit reform alone and passed along $5.9 billion of that savings to their customers. Given increasing volume, that’s more than $30 billion saved by consumers over the past five years.

But the Shapiro study does not stand alone in proving the banks wrong.

The Bureau of Labor Statistics says the Producer Price Index (what retailers pay for the goods they sell) rose 9.4 percent in the first five years after debit fee reform ended anti-competitive price fixing in October 2011. But the Consumer Price Index (what retailers charge their customers) rose only 6.6 percent over the same period.

That means retailers absorbed a third of the increases in wholesale costs they saw during the period. And a big part of why they could do that was the savings seen under debit reform.

Retailers pass the value on to their customers in many ways.

The Producer Price Index rose 9.4 percent in the first five years, but the Consumer Price Index rose only 6.6 percent over the same period.

In the case of discounters, whose customers focus on price, the savings is most often passed along in the form of reduced prices and the avoidance of price increases. For luxury retailers, whose customers worry less about price but do care about service, the savings is more likely used to ramp up the extra services their customers desire, such as expedited special orders. At either end of the spectrum — and proportionately in between — the savings are shared in ways that each retailer’s customers find most valuable.

The banks have done some laughably bad surveys intended to “prove” the contrary. The typical approach has been to check store shelves for the price of a commodity like peanut butter and then claim retailers “pocketed” debit savings because the price stayed the same while ignoring the fact that peanut prices had soared.

Speaking of food, the BLS numbers show that the Producer Price Index for supermarkets went up 20.3 percent in the first five years of debit reform while prices charged to customers went up only a fraction of that at 7.2 percent.

Banks have also claimed that gasoline prices have gone up. In fact, they were down from an average $3.51 a gallon when debit reform took effect to $2.36 five years later, according to the Energy Department. And gas stations are one of the most clear-cut cases of debit reform benefiting customers, with many station owners giving customers who pay by debit the same discount as those who pay by cash.

Correcting the record about the Durbin Amendment

How are banks making out under debit reform? They might be crying poor, but big banks’ net profits averaged 24.5 percent as of January, according to New York University. That’s nearly 10 times the 2.6 percent average for general retail.

Clearly, the banks miss the days when they could price-fix debit card swipe fees as high as they liked, and want to bring them back. If debit reform is repealed, the savings that have benefited consumers would quickly be reversed. Worse yet, the banks would likely move quickly to make up for the five years of swipe fee increases that have been avoided. Our nation’s economy cannot afford to allow that to happen.