Big Box Retailers To Fed: Trust Us, Consumers To Profit From Interchange Amendment
WASHINGTON – Big Box retailers Target, Wal-Mart, SuperValu and Costco are urging the Federal Reserve to proceed with its bid to curb debit fees, insisting they will pass on billions of dollars in reduced charges to consumers.
“Given the competitive nature of retail, whatever the benefits might turn out to be to us and to our principal competitors, those benefits are highly likely to accrue directly to the consumer,” Terry Scully, president of Target Financial Services, one of the few big box retailers to compete directly with credit unions and banks with its own bank, told the Fed in a recent comment letter on the proposal.
“Wal-Mart’s founder Sam Walton developed our ‘Every Day Low Price’ business model when he created this company,” Charles Holly, chief financial officer for the nation’s leading retailer told the Fed. “EDLP is the foundation for the trust our customers have that we will provide consistently low prices every time they come to one of our stores or clubs.”
Meantime, several U.S. Senators are preparing to introduce legislation that would at least delay the impending implementation of the interchange provisions for as long as two years while the Fed and interested parties study and discuss the complication issue. The stakes in the fight are huge, as an estimated $20 billion a year in debit fees are being paid by merchants to banks and credit unions, with credit unions earning about $2.5 billion of that.
The big box retailers are the lead drivers in the Merchants Payments Coalition, which has been lobbying Congress for several years to roll back some of the estimated $65 billion in interchange fees on both credit cards and debit, finally breaking through with last year’s Durbin amendment limiting debit fees.
“The banks have had the freedom to centrally set interchange fees while the merchants compete for customers based on prices and services offered,” wrote Arthur Jackson, vice president, general administration for Costco Wholesale. “Banks have increased fees without any consideration for the impact on merchants and consumers alike. Another conundrum which should spur questions regarding the banks’ motives has to do with the fact that despite technological advancements, increased efficiency and effectiveness of banking efforts, the fees are increasing rather than the expected decrease in fees and costs.”
OfficeMax, another retailer lobbying for the debit amendments, wrote that it has had a 33% increase in debit card interchange fees over the past two years without any sign of improved service, debit network coverage or fraud prevention as a result of the increases. “It is our belief,” wrote Ryon Wharton, vice president, controller of OfficeMax retail, “that the proposed rules will create much-needed competition among debit networks by allowing retailers to direct transactions to the networks offering the best value.”
Home Depot told the Fed interchange fees are set by the two dominant card networks, MasterCard and Visa, and appear to be immune from market forces. “Whether this should be described as a ‘broken market’ or ‘market failure,’ interchange fees are clearly not subject to competitive market pressures,” wrote Dwaine Kimmet, treasurer and vice president of Home Depot Financial Services. Kimmet insisted that, “One way or another, the Company will use any resulting reduction in excessive debit card fees to benefit our customers.”