Mom-and-Pop Retailers Try To Check Debit Fees

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WASHINGTON – Hundreds of neighborhood business are calling on the Federal Reserve to proceed with the debit interchange provisions of the Dodd-Frank Act in hopes of passing on the savings back to their communities.

The fight over the $20 billion a year merchants pay in interchange to credit unions and banks, while ostensibly between the huge banks and the big box retailing giants, is being played out between the thousands of small businesses and local financial institutions who have much smaller stakes.

“Hard work does not ensure success when you sell a package of cigarettes for $4, make 15 to 20 cents, and then have debit card fees that eat most of that small profit,” Howard Davis, owner of Nampa, Idaho’s Howard’s Tackle Shoppe, told the Fed in a recent comment letter on the proposal. Davis, whose shop sells fishing tackle and convenience store items, said he pays as much as $600 a month on interchange fees in the winter and a much as $1,500 a month in the summer.

“The swipe fee reduction that was included in the financial reform bill will mean a great deal to many small businesses,” wrote June Kaefer, owner of Jack’s Lawn Mower Service in North Tonawanda, N.Y. “Right now, the banks nickel and dime retailers to death, and we have very little recourse. This bill takes away the feeling of helplessness that small businesses have when dealing with big banks.” She said her 82-year-old, five-employee business pays between $800 to $1,600 a month in card fees.

“My card fees average about $300 a month,” wrote Mike Kowalski, owner of Mike’s Famous Steak & Subs in Newark, Del. “Although I would like to raise prices on our sandwiches to cover these fees, I believe that would price us out of the market. Some local merchants have posted signs and require a minimum purchase of $10 before they accept cards. I cannot do this either because I need my customers.”

A reduction of the debit fees, Kowalski wrote, would enable him to make capital investments to grow his business, such as buying a new refrigerator or air conditioner for his sub shop.

“The industry is sorely in need of reform and I am glad to know the Federal Reserve has taken it on,” wrote Linda Phillips, owner of Varsity Drug in Lamoni, Iowa, who pays $600 a month in debit fees.

The new merchant onslaught comes as mom-and-pop credit unions and community banks are deluging the Fed with letters urging a tempering of the fee cuts because of the importance those fees mean for their businesses. “If the reduced income comes to realization, this credit union will lose 75% of its interchange income,” Kevin Scott, chief operating officer for $87 million Texoma Community CU, told the Fed. “TCCU’s entire net income for 2010 was $350,000. The credit union must recoup that revenue in the form of higher fees, higher interest rates or by reduced deposit rates.”

The merchant onslaught has given lawmakers pause in moving to change or delay implementation of the interchange rules, as the deadline for action is rapidly approaching. The financial reform bill gives the Fed until April 21 to adopt a final rule and until July 21 to implement the rule.


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