Update: Financial Reform Is More Of A Boon Than A Burden For Retailers
Pundits predicted that financial institutions would create a number of loopholes to make up for any losses created by the Financial Reform Bill. It looks like consumers are footing the bill, not retailers.
January 9, 2012
After economists predicted that banks might try to find creative ways to make up for lost revenue following the new debit card swipe rules, it seems some garden centers and other home goods retailers may stand to benefit. As of October 1, 2012, the date when the regulations went into effect, retailers must pay a flat fee. For the past three months, banks have received 21 cents plus an additional cent to protect against fraud on all debit card purchases.
In theory, financial institutions can opt to charge less than the maximum for small purchases, but most banks are charging 22 cents for all purchases.
“It’s their decision, and it is allowed under Congress, although that was not their intent,” says J. Craig Shearman, vice president of government affairs and public relations for the National Retail Federation. According to Shearman, the cap was meant to be used as a maximum guideline for all purchases.
While many retailers feared the new debit card cap would hurt small businesses, those who sell a lot of small ticket items are most affected. For businesses with a high volume of purchases under $10, the new law benefits the banks. However, Shearman believes that for the home goods industry, the new regulation is “a non-issue.”
“At a garden center, where there are not many purchases under $10, the retailer should see significant savings,” says Shearman.
As for garden centers and nurseries that sell their wares at farmers markets or feature cafes in their stores, the new rule cuts into profit margins.
To combat the loss of revenue from the new law on their end, some financial institutions have attempted to drum up fees elsewhere. Shearman cites Bank of America’s idea to begin charging a $5 monthly fee to customers for using their debit cards as one attempt that backfired. Due to the overwhelming backlash, Bank of America quickly stopped charging the $5 fee.
“What we have been fighting for is transparency,” says Shearman. “People are not going to pay outrageous fees, but only if they know about them. Banks have to offer competitive rates or consumers move on.”