In this economy, everyone is looking for ways to save money. And that is certainly the case for small business operators in New Hampshire. In fact, mom-and-pop shops are keeping a close eye on federal legislation involving credit cards and “swipe fees.”
The bipartisan Credit Card Competition Act of 2023 promises to “enhance competition and choice” in the credit card network market. Sens. Dick Durbin (D-Illinois), JD Vance (R-Ohio), and other advocates argue the market is dominated by the “Visa-Mastercard duopoly.” As a result, the senators want the Fed to require “giant credit card-issuing banks” to offer a choice of networks over which a credit card transaction is processed.
Bruce Berke, state director of the National Federation of Independent Business New Hampshire (NFIB-NH), likes what he sees.
“People forget about all these costs and fees that they think businesses pay. But at the end of the day, the consumers end up paying these fees,” said Berke. “If these fees can be reduced, then costs can be stabilized a bit, and competition can be fairer.”
Nashua business owner John Motta also favors the Credit Card Competition Act. The immigrant entrepreneur and franchisee owner has stated for months that now would be a wonderful time to pass the legislation amid persistent inflation and supply chain issues. Motta has also described swipe fees as a business’s second-highest expense.
“Today Mastercard and Visa are the only two major credit card companies, and businesses pretty much have to use one of them,” Motta told New Hampshire Journal. “Without more competition to these two, they can charge any fee they like, and the business needs to pay it. So with more competition, the fees would most likely drop.”
In a February op-ed published in The Hill, Motta explained that merchants pay, on average, between 1.5 to 3.5 percent of the total transaction amount with every credit card payment. Meanwhile, many small businesses and those with tight profit margins are forced to bake those fees into the price of their goods and services. As a result, Motta said swipe fees act as an inflation multiplier — higher prices result in higher swipe fees, creating a vicious cycle of exceedingly expensive products.
CMSPI recently found New Hampshire pays over $388 million in swipe fees and would stand to save an estimated $63 million if the CCCA were to pass.
Some readers may view this as business owners worried about how much money they bring home. But Motta told NHJournal consumers would benefit from the measure. If a business can cut its costs, there is no need to raise prices.
Motta’s comments have weight. He is chairman of the Coalition of Franchisee Associations, an organization that bills itself as the voice of franchisees, i.e., small businesses that are the backbone of every community.
“Small businesses do not have the free choice to go out and choose who they give their money to,” adds Berke. “It is taken away every month before they have the choice to come back and say, ‘Wait a minute, let’s look at this and negotiate a better rate.’”
Not everyone is sold on the legislation. Todd Zywicki, a George Mason University Law School professor, has warned consumers across the country that the bill would only make credit cards more expensive.
“Durbin-Vance stems from Mr. Durbin’s eponymous amendment to the 2010 Dodd-Frank Act, which imposed price controls and similar routing requirements on debit cards,” wrote Zywicki in a July op-ed published in The Wall Street Journal. “The aim was to reduce interchange fees, which are paid to the card-issuing banks to cover the costs of authorizing and processing customers’ accounts and transactions.”
The effort was successful, cutting the cost per transaction in half. However, Zywicki said it cost banks an estimated $15 billion yearly in lost revenue. And despite promises from retailers to pass on the savings to customers through lower prices, research from places such as the Federal Reserve and University of Pennsylvania showed “retailers pocketed the savings” and banks made up for lost income by upping unrelated fees and taking away age-old benefits like free checking.
“Although a disaster for consumers, the Durbin amendment was a windfall for mega-retailers like Walmart, Amazon, and Target,” wrote Zywicki, a Law and Economics Center research fellow.
NFIB’s support for the Credit Card Competition Act is unwavering, saying that without it, businesses everywhere will continue to be subjected to ever-rising swipe fees set by large companies in a closed market free from competition. As a result, NFIB is urging its members and other concerned individuals to write their members of Congress and tell them how credit card process fees impact business.
Companion legislation has been introduced in the House by Reps. Lance Gooden (R-Texas) and Zoe Lofgren (D-Calif.).
It is possible the issue could be a factor in New Hampshire’s first in the nation presidential primary. Presidential candidate Sen. Tim Scott (R-South Carolina) is ranking member of the Senate Banking Committee, which is where the bill is being considered.
Scott did not respond to a request for comment.