SALT LAKE CITY — Utah retailers are decrying legislation co-sponsored by Sen. Mike Lee, R-Utah, that would put on hold for two years proposed Federal Reserve caps on the fees banks charge for processing debit transactions.
The Debit Interchange Study Fee Act, S. 575, also calls for a one-year study of debit interchange fees.
I believe we can form a better solution that does not unnecessarily burden small businesses and local financial institutions or pass fees on to the customer. The delay in implementing the rule will allow us to find options that benefit everyone.
–Sen. Mike Lee
The Federal Reserve was required, under the federal financial reforms passed by Congress last year, to set transaction fees at a level that is "reasonable and proportional." The limits would apply only to banks with $10 billion in assets or more.
Senators who back S. 575 say the limits are tantamount to price fixing.
"Price controls are almost always problematic," Lee said in a press release from the bipartisan coalition of eight senators sponsoring the legislation.
"If the rule remains in place, retailers, banks and consumers will lose out in the long run through higher costs and limited choices. I believe we can form a better solution that does not unnecessarily burden small businesses and local financial institutions or pass fees on to the customer. The delay in implementing the rule will allow us to find options that benefit everyone."
But Dave Davis, president of the Utah Retailer Merchants Association and Utah Food Industry Association, said the retail community has been working these issues for more than a decade.
"It's a little disheartening, at the last minute, to try to put them on hold for two more years," Davis said.
The retailers, food industry and the Utah Petroleum Marketers and Retailers Association felt so strongly about the newly introduced legislation that they took out a full page ad in Salt Lake's daily newspapers Monday calling on Lee to stand up for Utah's small businesses. The ad likens the effect of S. 575 to "another big TARP (Troubled Asset Relief Program) bailout."
Lee, responded to a KSL News inquiry about the advertisement with a prepared statement: "The legislation I cosponsored is not in any way related to TARP, nor does it bail out banks. It does, however, delay the creation of price controls, which are inherently anti-free market.
"I am curious to know how the retailers would react if the Federal Reserve were to set prices on the products they sell. I imagine they would be asking me to delay and oppose the legislation, much the way I'm doing now," he said.
Davis said the organizations understand that Lee would prefer to let the free market dictate the fees rather than have Congress authorize a government agency to set limits.
"As a general rule, we believe in the free market with as little government interference as possible," Davis said.
"With the Visa-MasterCard monopoly, there is no free market left," he added. "We have not had the capacity to negotiate with those folks. They simply put an agreement before our guys. They say, 'If you don't want to sign the agreement, fine. But you can't take Visa cards. You can't take MasterCards.'"
In this case, where there is no free market, Davis said, "we feel some appropriate government intervention is needed."
The Utah Bankers Association disagrees, and says Lee should be applauded for backing a bill that would study the impact of caps on debit card transaction fees. Howard Headley, president of the association, says the amendment to cap the fees was added to the 2m300 page Senate bill at the 11th hour.
That's money coming out of retailers' pockets and consumers' pockets.
–Dave Davis, Utah merchants, food industry
"The debit card system is phenomenally popular and successful for retailers and consumers, and paid for by the businesses that benefit from it," he says. "Now, retailers want the benefits without having to pay for it."
Headley says transaction fees help cover losses from fraud. The amendment forbids that, and he argues if fees are capped, the extra costs will be pushed onto the backs of the consumers.
He calls the newspaper spread "an ugly ad," commends Lee for wanting to take more time to examine a bill that needs "public input and study." Headley says the impact of caps on transaction fees could be "devastating for consumers.
John Hill, executive director the Utah Petroleum Marketers and Retailers Association, says, "The marketplace in this instance is the seven biggest banks versus consumers."
The delay tactics are an attempt to kill the reforms all together, Davis said.
While Lee has said he opposed Wall Street bailouts, opponents of S. 575 say delaying the implementation of financial reforms would benefit big banks by $1 billion a month.
"That's money coming out of retailers' pockets and consumers' pockets," Davis said.
Lee's statement said he understands the issue affects many Utah businesses directly but said the association's ad is "misleading and false."
"I am committed to having a dialogue with all interested parties as this issue progresses," Lee wrote.
The Federal Reserve, according the Senate coalition's press release, is proposing a rule that will cap the interchange fee per debit card transaction at 12 cents, regardless of the size of the transaction.
Davis said debit transactions are essentially electronic checks, which are now cleared by the Federal Reserve "at par," meaning without fees.
"What's the cost of doing a debit transaction when there really is no risk," Hill said.