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A Democrat's take on the Durbin amendment

Interchange Blog:  What happened on the Durbin Amendment

Here's an interesting blog on interchange that we thought you might find helpful and informative.  It's a little late, but the fact that it was written by a pro-Obama Democrat gives you some indication about its impact, in spite of what Senator Durbin says. 

We've given you the website and copied the article below.  It's written by Bob Tuke, the Democratic nominee for U.S. Senate in 2008, former Tennessee Democratic party chairman and political director for Obama for America in Tennessee.


Here's the Blog:   

Big retailers like Wal­-Mart are famous for doing whatever it takes to cut costs. Whether squeezing their suppliers or their workers, a major retail corporation can use its huge volume of transactions to transform what appears to be a minor saving into millions in extra profits.

Now, with the recession having frozen wages and slashed suppliers' profit margins to near-zero, the mega-merchants have a new strategy to boost their profits: attaching special interest amendments to financial reform legislation that's intended to help consumers.

The bitter irony is that if retailers get their way, consumers would be hurt, not helped.  (Editor's Note – They did, and consumers will be.)

Consumers want convenience

Lobbyists working for Wal-Mart and other big retailers are pressuring the Senate for backdoor amendments to the banking reform bill being debated right now. The amendments essentially would force down the modest “interchange” fee retailers pay to banks and credit unions who issue credit cards.  (Editor's note – they did and it passed). 

These fees, which are generally a mere 1 to 2 cents on the dollar, have been the subject of a massive lobbying and public relations campaign by retail corporations for the past two years.

This particular legislative battle might seem like so much corporate infighting, but for the effect it will have on small businesses and consumers.

While mostly invisible, the electronic payments network benefits more than 25 million merchants and billions of consumers each year. Consumers enjoy the convenience and security of not carrying cash, easier record keeping, fraud protection, and card-holder rewards. Retailers see revenues jump by up to 50 percent when they start accepting cards, according to Entrepreneur magazine, and they avoid any risk of default if the customer fails to pay the bill — that becomes the issuing bank's problem.

What makes the whole system work, according to economists, is the interchange fee — because it creates an incentive for banks and credit unions to issue cards that retailers can accept all over the world. If the fee is cut, credit availability for consumers and small businesses could be squeezed.

And the nonpartisan Government Accountability Office (GAO), which issued a report on inter­change last year, said consumers could actually lose money under the Wal­Mart plan: simply put, if retailers pay less for the credit card system, cardholders will have to pay more. One estimate puts the additional burden for working families at $400 a year.

History provides a case study of what happens when the government interferes with the interchange system. Australia slashed the interchange rate in 2003, and the GAO report confirmed what other studies have shown: customers ultimately paid for the retailers' wind­fall, in the form of higher prices for their cards, limited rewards, and fewer choices.

Bill undermines businesses

There's another factor at work in the big retailers' goal of undermining the interchange system: the ability it gives any merchant to sell goods 24 hours a day, all over the world, is a powerful force that threatens the brick-and-mortar retail giants.

It's not difficult to see why America's supermarket conglomerates, convenience store empires and drugstore chains are eager to undermine the electronic payments system that threatens their dominance, especially when they can also achieve a profit windfall by shaving a few cents from their interchange expenses.

What is difficult to comprehend is why the Senate would consider handing the Wal-Mart's of the world more power to undercut small businesses and take money away from ordinary families around the country.

Wal-Mart's interchange “reform” is a handout to special interests and a perversion of the purpose of the current financial reform legislation: protecting consumers from corporate bad behavior.

By that standard, the Senate's decision should be easy: Just say “no” to the big retail lobbyists.

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