Debit Card Swipe Fees Revisited

The GOP effort to unseat Jon Tester and secure a promotion and a raise for Denny Rehberg is continuing to use their bizarre but apparently effective strategy of attacking Tester for being too liberal and too conservative at the same time, hoping to demoralize his base while energizing their own. The latest effort? Accusing Tester of selling out big banks by not agreeing with plans to have the government set prices for debit card swipe fees. But there’s two narratives to that story, and interestingly Tester went with the more conservative one. And while the law certainly had some strengths, in hindsight Tester’s decision makes a lot of sense.

The narrative being pushed in recent TV ads against Tester is that the government, ignoring Regan and Romney’s maxims, was in fact part of the solution, riding in on a white horse to protect retailers from exorbitant, nay, usurious, debit card swipe fees. In this narrative, Tester does not come out well, defending the evil banks but ultimately failing like the bodyguard of any movie villain.

The alternate narrative, on the other hand, is a bit more nuanced. Retailers and banks have been locked in a dispute over the fair price to charge for the convenience and increased business of accepting debit cards, with card companies and banks siding with Publius Syrus that everything is worth what its purchaser will pay for it, and retailers believing (rather quaintly) that the cost they paid should be based on the costs borne by the banks. The retailers essentially capitalized on public antipathy towards banks to lobby the government to solve their problem for them.

Which narrative you believe depends a lot on your background and basic beliefs about the role of government and markets, and both have some validity (though interestingly, the latter is far more in line with the ‘less regulation’ mantra of the GOP this year). I couldn’t say for sure how I would have voted if I had been in the Senate in Tester’s place. But looking back at the predictions made by both sides, which typically ranged from Armageddon for banks to the Age of Aquarius for retailers, I think that there is a lot to be said for Tester’s decision.

The promised lower prices have been far from universal (ABC News charitably calls them ‘squishy‘, despite retailers saving millions of dollars a day. And despite promises from the laws supporters, it is costing small banks, which were supposed to be immune, over 300 million dollars a year, exactly as small bank organizations and Jon Tester warned. Most damagingly, however, the law has made free checking less available and has raised checking fees, as well as pushing banks to encourage credit card use and discontinue debit incentives. All that means less access to banking services for low-income Americans and greater credit card debt for the typical consumer. In light of all that, though I respect what swipe fee reform tried to do, Tester’s original suggestion to study the effects further before passing it seems rather appropriate.

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  • The Tester camp’s theme through the debate and through the campaign has remained consistent and admirable. Jon said at the time that he was looking out for Montana, just as he has through this election cycle. Jon’s opposition to the Swipe fee cap was precipitated and endorsed by the Montana Credit Union Network as well as local bank associations. Only two National banks operate in Montana. So, it should be stressed that Jon kept his word to the state, that he would look out for our interests first.

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