Small Biz Owners Celebrate Victory in Debit-Fee Fight

A proposal to delay regulations that would put a new cap on debit-card swipe fees that large banks charge merchants fell six votes short in the U.S. Senate on Wednesday; big banks are disappointed, but TCF says that it will keep fighting through a lawsuit that it filed in October.

Minnesota's small business owners are celebrating a big Wednesday win following a Senate vote that paves the way for new regulations that will require them to pay less to big banks in debit-card swipe fees.

A proposal to delay the new regulations-which was backed by many big banks-fell six votes short of the 60 needed to prevail. The vote was 54-45.

“It was a great win for independent dealers, small businesses-especially across Minnesota,” said Ted Brausen, owner of a Shell gas station/convenience store in Arden Hills and Brausen Auto in Roseville.”I think small business has been taken advantage of for years.”

The regulations in question were proposed by the Federal Reserve and refer to fees that merchants pass along to banks in exchange for being able to accept debit-card payments. They constitute the Durbin amendment, a portion of the Wall Street financial reform act, and apply only to banks that have $10 billion or more in assets.

Both TCF Financial Corporation and U.S. Bancorp have spoken out against the new regulations. Wayzata-based TCF sued six members of the Federal Reserve's board in October, arguing that the Durbin amendment would cause it to lose significant revenue and is unconstitutional. And U.S. Bancorp's CEO Richard Davis said at a conference last week that the new fee limits may cost the bank $400 million in annual revenue.

Limits proposed by the Federal Reserve would cap debit-card interchange fees at 12 cents per transaction, displacing the current formula that averages 1.14 percent of the purchase price. But the banking industry pushed bills that would delay implementation of the reform, which opponents said was an effort to repeal it altogether.

“We were fighting against the big banks,” Brausen told Twin Cities Business. “They have a lot more money than we do. They have a lot more lobbyists than we do.”

Brausen estimates that the new regulations will save him about $6,200 per year-money that he'd like to put toward hiring an additional part-time worker at his Shell station.

Channing Smith, who owns a Corner Store gas station/convenience store in Inver Grove Heights, said his rough estimate is that he'll save about $5,000 a year thanks to the new regulations, which are scheduled to take effect July 21.

“We're a business of pennies,” Smith said. “Our margin is pennies.”

TCF spokesman Jason Korstange told Twin Cities Business on Thursday morning that the vote was disappointing, but the fact that 54 senators wanted to delay enactment shows that “the Senate knows that this is a bad bill.” He said the company will continue to fight the proposed regulations through its lawsuit. TCF wants the court to rule on the constitutionality of the new regulations before they go into effect-and Korstange said he's confident that a decision will be made prior to July 21. TCF stands to lose between $75 million and $80 million annually if the Federal Reserve's current proposal goes into effect, he added.

As to the claims that small-business owners have made about the need for debit-card fee reform, “they receive a tremendous value for those debit cards,” he said. “If they didn't think they had the value out of that card, they wouldn't take it” as a method of payment from consumers.

Korstange added that many businesses have seen increased efficiencies as a result of debit cards. For example, self-pay options at grocery stores and pay-at-the-pump options at gas stations have decreased the number of employees needed to take payments.

Brausen and Channing-both of whom flew to Washington, D.C. this week to join other U.S. small business owners in supporting the new regulations-point out that debit-card swipe fees and credit-card swipe fees are different, but they pay both depending upon which type of payment their customers submit. Channing said that his average gross profit per gallon of gas last year was 18 cents-of which about 6.5 cents, or 36 percent, went to credit card companies and banks. Now that the debit-card reform is poised to happen, both business owners would like to eventually see similar new regulations for credit card fees they pay.

“We're not asking for a free ride. . . . We're asking for reasonable,” Brausen said. “It's just outrageous what they charge us.”

Representatives of U.S. Bancorp couldn't be reached Thursday morning for comment. But Davis said last week that U.S. Bancorp may be able to recoup some of its debit-card fee losses by imposing new fees for checking accounts and other services.