Financial Reform: Democrats, Don't Do This to the Poor!
By Russell Simmons
Huffington Post
To the Members of the Financial Reform Conference Committee:
I have worked all of my adult life as an advocate for the poor, the voiceless and the under-served. Two weeks ago, I came to Washington to meet with members of Congress about my deep concern of the unintended consequences that the Durbin Amendment would have on the poor in America. Since then I've heard a lot of talk but I'm increasingly concerned that the central issue, the affect on the the most vulnerable in our country is not fully appreciated by those making the decision. I want to point out what's at stake:
Debit cards are the entry point for millions of Americans into the American financial system. Debit cards are what keep the under-served -- including minorities, immigrants, the poor, soldiers, veterans and students -- from the claws of payday lenders and check cashers, from humiliating lines waiting to cash their paychecks and then more lines to pay their bills. Debit cards are giving the 80 million Americans, who would otherwise go to check cashing and payday stores, the convenience and respect that those with credit cards and bank accounts take for granted. This very system is being singled out for attack just when it should be favored over credit cards. Credit cards are out of reach for the under-served and they encourage you to borrow when you shouldn't be. Yet the alternative is being targeted.
As the owner of a debit card company, I know first hand how being part of the American economy can change someone's future. However, let me be clear, this is not about my company or me: in fact this amendment will have comparatively little and possibly a positive effect on my particular business. This is about ensuring that within our desire to create financial reforms, we do not do so at the expense of the poor.
I have studied the Durbin Amendment. I have spoken to Congressman, Congresswomen, Senators and their staffs. I have spoken to groups that have no hidden agenda: the Community Banks and Credit Unions -- the good guys in the financial system. I don't work for Visa or Mastercard and I don't give a damn about the profits of the big banks. Regulation is long overdue, and I support the "Move Your Money" campaign to support community banks, credit unions and specialist providers of debit card services. No one has yet been able to tell me how Senator Durbin's amendment will keep the under-served from being hurt by higher fees for the very basic service that debit cards provide or how the amendment will ensure lower prices for consumers instead of bigger profits for merchants. I can't believe financial reform has come down to this: big retailers in a money grab on the backs of the poor and under-served.
Is this the Democratic Party I know and support? Is this the Congressional Black Caucus? The Hispanic Caucus? The Progressive Caucus? The Obama Administration? Where is the fairness in this amendment? The rich keep their "interchange" subsidy from their credit cards, but the working people, the debit card customer -- sorry, you're on your own.
I have advocated on behalf of the poor for new language in this amendment that will protect them, and I have received assurances that it will come. However, until I see action behind the words, I will continue to fight for the needs of poor people. I will not let this issue go unaddressed. I will keep it alive in every election until you right the wrongs in this amendment and protect the poor.
Source: Huffington Post
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Another view of this issue
http://www.philly.com/inquirer/business/20100620_Consumer_10_0__A_kerfuf...
Consumer 10.0: A kerfuffle over 'fee creep'
Effort to rein in debit card fees draws hot debate.
By Jeff Gelles
Inquirer Business Columnist
Corporate welfare. Price controls. Fat cats.
Those are just three of the overheated attacks from a single e-mail denouncing a provision in the Senate's financial-reform bill: an amendment, proposed by Sen. Dick Durbin (D., Ill.), reining in debit card fees.
If you're wondering, the fat-cat corporate-welfare recipients are retailers such as Walgreens. And the language on the other side is equally hot, starting with an attempt to rebrand debit card interchange fees as "swipe fees" - a reference to the process of moving a card through a magnetic-strip reader that also carries an odeur of theft.
The amendment's supporters say their foes are running a "disinformation campaign," according to another e-mail, which labeled Durbin's opponents as "the same big banks and financial institutions that drove our economy into the ditch."
From the barrage of rhetoric, you might think Durbin's amendment was among the most important aspects of financial reform.
You'd be wrong, even if nearly $50 billion in annual fees are involved. Durbin's effort to rein in debit fees is largely a sideshow, overshadowed by provisions aimed more squarely at preventing a repeat of the housing bubble, credit crisis, and financial collapse.
But it's an entertaining and important sideshow all the same, and one that illustrates some of the dangers of unfettered, the-market-knows-all ideology.
The truth is that sometime, while we weren't looking, America's long-heralded "cashless society" sneaked up on us. We now have two parallel monetary systems. One is public and run through institutions such as the Federal Reserve. The other is private and dominated by Visa, MasterCard, and the banking industry.
The details are complicated, but from a merchant's point of view, one distinction is key:
When you pay with cash or check, your payment clears "at par," in bankers' lingo: You write a check to Macy's for $100, or hand the cashier five crisp $20s, and Macy's gets $100 for its account.
But when you pay with plastic, the companies that run the system take a cut - or many small cuts that add up. You hand your card to the Macy's clerk to pay for $100 worth of merchandise, and Macy's gets, say, $97 or $98.
A growing price tag
So what's the problem? For some businesses, that small cut is the difference between a profit and a loss. And the system's increasing dominance by Visa, MasterCard, and the leading banks has led to an ugly case of fee creep.
A few years ago, when bank cards were mostly processed through regional networks, there was a sharp difference between the transaction fees assessed for credit cards and debit cards.
Credit-card issuers typically took 2 percent to 3 percent, justifying the fees because of transaction costs and credit risk. The issuers were on the hook, after all, for the costs of fraud or cardholder default.
But if a merchant had a PIN pad, you could pay with a bank card directly from your bank account - much as you would with a check - for a flat fee that might cost the store 20 or 25 cents.
What's changed is that Visa and MasterCard have largely vanquished the independent, regional networks - Durbin says the two card companies now control 80 percent of debit transactions. And their market power has allowed them to raise fees for lower-risk debit transactions and to move many to a percentage-based system similar to that used for credit cards. Debit card fees now average 1 percent to 2 percent, he says.
Blasted as a price-fixer, Durbin says, au contraire, his amendment - which passed the Senate with 17 Republican votes - "is a response to interchange price-fixing by Visa and MasterCard."
What Durbin's plan would do
It's hard to say whether it's disinformation, but there does seem to be lots of misunderstanding about Durbin's proposal. (For details, visit http://go.philly.com/durbin)
Durbin's amendment has two main elements.
The first would direct the Federal Reserve to ensure that debit card fees be "reasonable and proportional" to the cost of transactions.
The second is designed to limit Visa and MasterCard's power by barring them from penalizing merchants who want flexibility in handling debit and credit cards.
If a retailer wants to set a credit card minimum - say, no credit cards for purchases under $5 - Durbin's amendment would allow it. He would also allow businesses to offer discounts to customers for using competing card networks, or for paying with cash or check.
Of course, what Durbin's amendment would most likely accomplish is give merchants more negotiating leverage. Most of them welcome plastic payments - if the fees are reasonable. The goal was brushstroke changes that would allow the market to function better.
There are details that may need adjusting - this is, after all, a parallel money system we're talking about. Legitimate questions have arisen, for instance, about the effects on debit-card-like systems used to distribute public benefits.
But some of the reaction is just plain silly, such as warnings about "the end of free checking" or the demise of credit card rewards.
Free checking was always a loss leader and will survive if competition demands it.
And face it, folks. There was only one reason card issuers were willing to give you rich rewards, such as 1 percent cash back on your purchases: They've been taking too much off the top in the first place.