In recent weeks, swipe fees have been the focal point of a report by the Federal Reserve Bank of Boston and two Congresssional committees. The report and both Committees' actions underscore the need for better transparency and fairness when it comes to swipe fees.

Federal Report on Swipe Fees

The Federal Reserve Bank of Boston recently issued a report on swipe fees. The report, “Who Gains and Who Loses from Credit Card Payments? Theory and Calibrations,” found that credit-card reward programs create “an implicit money transfer” from non-card holders (i.e. those paying in cash) to cardholders.

This report attributed the transfer to merchants being forced to raise prices to cover the costs of the increasing use of credit cards by some consumers. According to the report, “This retail price markup for all consumers results in credit card-paying consumers being subsidized by consumers who do not pay with credit cards.”

The report also found that credit-card use and reward programs were positively correlated with income. This means that lower-income consumers, who are more likely to pay in cash, subsidize higher-income consumers’ use of credit cards. The report calculated that, after accounting for rewards paid to households by banks, the lowest-income households (defined as those making less than $20,000 a year) paid $23 a year, while the highest-income households (defined as those making $150,000 or more) received an annual subsidy of $756.

The report concluded that reducing the swipe fees that merchants are forced to pay likely would result in an increase in consumer welfare.

Please click here for the full report.

House Small Business Subcommittee Hearing on Swipe Fees

The U.S. House of Representatives Committee on Small Business Subcommittee on Investigations and Oversight held a July 29 hearing on “The Impact of Interchange Fees on Small Businesses.”

The subcommittee, chaired by Rep. Jason Altmire (D-Pa.), featured four witnesses, all but one of whom was from in or near Altmire’s district. Two of the witnesses, representing the banking and credit-union industries, opposed the new swipe-fee reform and two of the witnesses, representing small businesses, supported it.

As the committee has no jurisdiction on the issue, the goal of the hearing was entirely informational.

Amendment Capping Federal Government Interchange Charges Defeated

The U.S. Senate Committee on Appropriations voted down an amendment to an appropriation measure it was considering on July 29 that would have capped the interchange fees paid by the federal government.

Specifically, the amendment, offered by Senate Majority Whip Richard “Dick” Durbin (D-Ill.), would have prohibited payment-card networks from charging the federal government an interchange rate higher than the lowest interchange rate available on the market.

In June, the U.S. Department of the Treasury (Treasury) released a report that found that the federal government spent more than $116 million a year on interchange and related card fees. The report also found that the government could save between 45 cents and 49 cents per transaction if Treasury could negotiate for better rates.