Debit fees: 'Just take the banana'

While the nation worries about important stuff like wars, joblessness, and, um, Obama's birth certificate, what should Congress worry about? If the nation's banks get their way, the answer is an odd one: debit-card fees.

Many of us thought the problem was solved last year in the Dodd-Frank financial reform, which directed the Federal Reserve to limit the fees, rising for years as Visa, MasterCard and the big banks have increasingly come to dominate the so-called interchange business.

The law directed the Fed to limit the fees, which average about 44 cents per transaction, to levels that are “reasonable and proportional to the cost incurred by the issuer.” The Fed's tentative conclusion, due to take effect later this year, was that a limit of 12 cents per transaction seemed about right, at least for a start. The regulation only applies to financial institutions with $10 billion or more in assets.

Case closed? Not in Washington, D.C., where the Fed's proposed decision merely set the stage for a mega-lobbying battle.  As the Huffington Post puts it:

But the clock never ticks down to zero in Washington: one year’s law is the next year’s repeal target. Politicians, showered with cash from card companies and giant retailers alike, have been moving back and forth between camps, paid handsomely for their shifting allegiances.

The HuffPost's piece is a good look at how we got to a place where a Capitol coffee-shop owner is so disgusted with the costs of plastic money that he tells some customers, "Just take the banana," while banks and merchant groups are waging a lobbying war in the nearby offices and corridors.

Should consumers just assume that they have no stake in the outcome? That's not a reasonable conclusion, unless you'd shrug off a bank-imposed sales tax of 1 to 2 percent as no big deal.  The banks want you to think that if the merchants get some of that money back via caps on fees, none of it will flow back to consumers. But retailing is a highly competitive industry - unlike, say, the bank interchange-fee business - so their argument doesn't hold much water.

A particulary telling perspective comes from Stan Sheetz, head of the Sheetz convenience-store chain:

The fees incense many merchants. Sheetz Corp. operates nearly 400 gas stations and convenience stores from Ohio to North Carolina, and CEO Stan Sheetz is pressing lawmakers hard to lower swipe fees. But unlike most retailers, Sheetz also serves on the board of a small bank that makes a fortune from fees. “From the bank’s standpoint ... it’s all gravy,” says Sheetz. “It’s a cash cow.”

Credit and debit swipe fees cost Sheetz $5 million a month, second only to labor costs among the company’s top executives, he says. “I am a die-hard capitalist pig,” Sheetz tells HuffPost. “That’s why Visa and MasterCard piss me off. ... They treat us like s---. The arrogance is unbelievable.”

That's the problem, in a nutshell: Banks make lots of money off debit interchange fees - estimates range from $10 billion to more than $20 billion a year. And they're devoting a serious chunk of cash to keep the spigot on for as long as possible. The only question is whether they can drag along enough Congress members to succeed.

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