Retailers are poised for a major victory in the Wall Street reform bill currently pending in Congress. The Senate adopted an amendment late Thursday that will slap sharp restrictions on the fees issuers levy every time a buyer pays with a debit card.
Called "interchange" fees, the charges typically consume 1% to 3% of every transaction run through a debit or credit card. Network operators like Visa (V, Fortune 500) skim off a fraction of the fee, while the rest goes to the financial institution that issued the card.
Those tiny slivers add up fast: Industry kingpins Visa and MasterCard collected interchange fees of at least $35 billion in 2007, according to government estimates.
The new Senate amendment adds two major restrictions to the rules on interchange fees.
First, it requires that the fee be "reasonable and proportional to the actual cost incurred" by the payment network or issuer for processing the transaction.
The Federal Reserve will have leeway to determine what counts as a "reasonable" fee, but it's likely to be a lot lower than the current rates. In response to an antitrust probe, Visa Europe recently announced plans to cut its interchange rate to 0.2% on some debit-card purchases, echoing an earlier move by MasterCard. Rates in Australia are capped by regulators at 0.5%.
Second, it allows sellers to offer a discount to customers who pay with cards that carry lower transaction fees.
That's a change merchants have sought for years. They're currently contractually obligated to accept all cards on the same terms. If American Express (AXP, Fortune 500) -- which has some of the industry's highest interchange rates -- costs a merchant more to accept than a Visa card does, the merchant can't offer buyers a discount for using Visa.
Backed by Senate Majority Whip Richard Durbin, D-Ill., the amendment passed the Senate 64-33. It's now part of the broader financial reform bill the Senate hopes to finalize next week.
That the proposal has made it this far is a major victory for retailers, especially small ones, who have fought for years for regulatory curbs on what they view as the monopolistic practices of Visa, MasterCard (MA, Fortune 500) and other payment network operators. For businesses with slim margins, like gas stations and convenience stories, interchange fees can devour or even eliminate their profit on sales.
"It's a wonderful thing," 7-Eleven shop owner Dennis Lane said Thursday on hearing of the amendment's adoption. "This is a really personal thing for me. Life is one big negotiation, but not with credit card companies."
Lane, the former head of the National Coalition of 7-Eleven Franchise Owners Association, has been an outspoken foe of interchange fees. For 36 years, he has owned a 7-Eleven outlet in Quincy, Mass., which has a staff of 12 and annual sales of $2.5 million. Next to labor, credit-card fees are his biggest operating cost -- and they're the only cost he has no control over.
"In 10 years, the fees have doubled," he said. "If I sell a Boston newspaper, I make approximately 6 cents. If someone whips out plastic, I might as well hand them the paper for nothing, because it costs me 12 to 14 cents to sell them the paper."
Durbin's amendment isn't a compete fix. Its most prominent limitation is that it only applies to debit cards. Credit cards, like those issued by American Express and Discover (DFS, Fortune 500), are exempt from the fee caps.
But debit cards are becoming America's plastic of choice: Consumers will charge an estimated $1.6 trillion on them this year, eclipsing their spending on credit cards, according to industry trade publication The Nilson Report.
The amendment also excludes cards issued by community banks and credit unions with less than $10 billion in assets -- those can continue to carry the same interchange rates they currently do.
But in practice, that exemption will have little impact. The vast majority of all credit and debit transactions go through major issuers like Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500), and analysts suspect Visa and MasterCard will simply choose to levy the lower interchange rates across the board, on all debit purchases.
Critics vowed to continue fighting the proposal. Bankers are lined up in opposition, and the National Association of Federal Credit Unions fired off a response saying it will keep lobbying to have the amendment stricken from the final bill.
"The adoption of this amendment makes a bill that was already problematic for credit unions even more problematic," the association said.
The Independent Community Bankers of America called the amendment "lose-lose" and said it will "force many community banks to reevaluate their ability to offer debit and credit cards."
Congressional representatives trying to court Main Street votes rarely take up arms against community banks and credit unions, but in this case, another set of iconic Main Street stalwarts -- America's millions of independent retailers -- put on a full-court press.
More than 130 trade associations, which together claim to tally $1.5 trillion in annual sales, banded together to back Durbin's amendment. Senators were stuck choosing which puppy to kick.
For 7-Eleven owner Lane, the proposal offers the tantalizing possibility of a sea change for the retail industry.
"We're not looking for a free ride," he said. "I believe interchange fees are a legitimate cost of doing business. What I'm looking for are the companies to partner with us and decide what's fair. This is the first step."Privacy lifebi Crazy for you Fantastic Puppy Modellhttp://forum.footballcup.nl
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Portugal Follows Spain on Austerity Cuts
José Gago da Graça owns a Portuguese real estate company and has two identical apartments in the same building in the heart of Lisbon. One rents for €2,750 a month, the other for almost 40 times less, €75.
Enlarge This ImageMiguel A. Lopes/European Pressphoto Agency
Portugal’s finance minister, Teixeira dos Santos, left, with prime minister Jose Socrates in Lisbon on Thursday. Portugal followed Spain’s lead in agreeing to more austerity measures to cut the deficit.
Multimedia
MapDebt Rising in Europe
The discrepancy is a result of 100-year-old tenancy rules, which have frozen the rent of hundreds of thousands of tenants and protected them against eviction in Portugal. Mr. Gago da Graça has been in a lawsuit for a decade over the €75-a-month apartment, since his tenant died in 2000 and her son took over and refused to alter his mother’s contract, which dates to the 1960s.
“We’re the only country in Europe that doesn’t have a free housing market and that’s just amazing,” Mr. Gago da Graça said.
Rules like these, which economists also blame for contributing to Portugal’s private debt load, help explain why this nation of 11 million has followed Greece and Spain into investors’ line of fire.
The Portuguese government Thursday followed Spain’s lead in agreeing with the main opposition party on more austerity measures to cut the deficit faster than planned, to 4.6 percent of gross domestic product next year from 9.4 percent last year.
To help restore investor confidence, José Sócrates, the Socialist prime minister, will rely on tax increases and cuts in wages and corporate subsidies to erase an additional €2.1 billion, or $2.7 billion, from the deficit. “These measures are necessary to obtain what’s essential, the financing of the Portuguese economy, but also to defend the euro,” Mr. Sócrates said.
Overhauling the tenancy rules, however, was not part of Mr. Sócrates’s latest plan. One fear among investors is that governments across the developed world do not have the courage and power to tackle such long-standing structural weaknesses.
Indeed, they may struggle even to implement their latest promises because the cuts could bring unrest and economic paralysis.
In Greece, recent protests against austerity measures turned deadly. In Spain, the two main labor unions called Thursday on all public sector workers to strike on June 2 against the government’s planned salary and benefit cuts. In Portugal, smaller political parties also urged resistance. Jerónimo de Sousa, head of the Communist Party, said on Portuguese television that “people have to react with protest and struggle.”
Under pressure from other world leaders, the governments in Portugal and Spain are taking similar paths toward getting their countries back within the euro’s deficit rules. But while there are problems of profligacy common to European nations, and also to the United States, each of the 16 countries in the euro zone has its own economic problems, and differences in legal and social structures that appear most in need of reform.
Portugal’s antiquated tenancy rules, for instance, stem directly from two revolutions that cemented leftist antagonism toward owners and landlords: the first was in 1910, which ended the monarchy, and the second was in 1974, which overthrew a dictatorship and returned Portugal to democracy.
The post-revolution rules helped protect tenants, but also led to a chronic shortage of rental housing. This, in turn, persuaded a new generation of Portuguese to tap recently into low interest rates and buy instead — often in new suburbs — thereby exacerbating the country’s mortgage debt and leaving Portugal with one of Europe’s lowest savings rates, of 7.5 percent.
“This system of controlled rents is a major problem for the Portuguese economy, but we will probably be waiting for a generational change to have room for institutional reform,” said Cristina Casalinho, chief economist of Banco BPI, a Portuguese bank. Beyond fueling housing credit, she added, the system “basically stops flexibility and mobility in the labor market because you can perhaps find a new job in another city but it will then be very difficult to rent a house there.” Planty Hold your hand Golden brige Airfore Sunflower http://www.plasmetic.com/forums
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Enlarge This ImageMiguel A. Lopes/European Pressphoto Agency
Portugal’s finance minister, Teixeira dos Santos, left, with prime minister Jose Socrates in Lisbon on Thursday. Portugal followed Spain’s lead in agreeing to more austerity measures to cut the deficit.
Multimedia
MapDebt Rising in Europe
The discrepancy is a result of 100-year-old tenancy rules, which have frozen the rent of hundreds of thousands of tenants and protected them against eviction in Portugal. Mr. Gago da Graça has been in a lawsuit for a decade over the €75-a-month apartment, since his tenant died in 2000 and her son took over and refused to alter his mother’s contract, which dates to the 1960s.
“We’re the only country in Europe that doesn’t have a free housing market and that’s just amazing,” Mr. Gago da Graça said.
Rules like these, which economists also blame for contributing to Portugal’s private debt load, help explain why this nation of 11 million has followed Greece and Spain into investors’ line of fire.
The Portuguese government Thursday followed Spain’s lead in agreeing with the main opposition party on more austerity measures to cut the deficit faster than planned, to 4.6 percent of gross domestic product next year from 9.4 percent last year.
To help restore investor confidence, José Sócrates, the Socialist prime minister, will rely on tax increases and cuts in wages and corporate subsidies to erase an additional €2.1 billion, or $2.7 billion, from the deficit. “These measures are necessary to obtain what’s essential, the financing of the Portuguese economy, but also to defend the euro,” Mr. Sócrates said.
Overhauling the tenancy rules, however, was not part of Mr. Sócrates’s latest plan. One fear among investors is that governments across the developed world do not have the courage and power to tackle such long-standing structural weaknesses.
Indeed, they may struggle even to implement their latest promises because the cuts could bring unrest and economic paralysis.
In Greece, recent protests against austerity measures turned deadly. In Spain, the two main labor unions called Thursday on all public sector workers to strike on June 2 against the government’s planned salary and benefit cuts. In Portugal, smaller political parties also urged resistance. Jerónimo de Sousa, head of the Communist Party, said on Portuguese television that “people have to react with protest and struggle.”
Under pressure from other world leaders, the governments in Portugal and Spain are taking similar paths toward getting their countries back within the euro’s deficit rules. But while there are problems of profligacy common to European nations, and also to the United States, each of the 16 countries in the euro zone has its own economic problems, and differences in legal and social structures that appear most in need of reform.
Portugal’s antiquated tenancy rules, for instance, stem directly from two revolutions that cemented leftist antagonism toward owners and landlords: the first was in 1910, which ended the monarchy, and the second was in 1974, which overthrew a dictatorship and returned Portugal to democracy.
The post-revolution rules helped protect tenants, but also led to a chronic shortage of rental housing. This, in turn, persuaded a new generation of Portuguese to tap recently into low interest rates and buy instead — often in new suburbs — thereby exacerbating the country’s mortgage debt and leaving Portugal with one of Europe’s lowest savings rates, of 7.5 percent.
“This system of controlled rents is a major problem for the Portuguese economy, but we will probably be waiting for a generational change to have room for institutional reform,” said Cristina Casalinho, chief economist of Banco BPI, a Portuguese bank. Beyond fueling housing credit, she added, the system “basically stops flexibility and mobility in the labor market because you can perhaps find a new job in another city but it will then be very difficult to rent a house there.” Planty Hold your hand Golden brige Airfore Sunflower http://www.plasmetic.com/forums
http://blog.fc2.com/forum_tw
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