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Swipe fee settlement, unsettled

By Janna Herron · Bankrate.com
Thursday, July 26, 2012
Posted: 6 am ET

It's Walmart vs. Big Banks. Whose side are you on?

On Tuesday, the biggest retailer in the world urged other merchants to rebuff a proposed settlement with Visa, MasterCard and 13 of the biggest U.S. banks over credit card swipe fees. The discount retail behemoth is troubled by the deal because it doesn't protect merchants from rising fees and restricts them from taking legal action.

Walmart joins Target and the National Association of Convenience Stores in speaking out against the deal. And, really, the retailer is doing it on our behalf, it says.

"The proposed settlement would not structurally change the broken market or prohibit credit card networks from continually increasing hidden swipe fees, which already cost consumers tens of billions of dollars each year," the Walmart press release said.

By rebuffing the deal, merchants will "put consumers first," the press release concluded.

So, the logic goes like this: Walmart readily admits that American consumers are footing the bill for these swipe fees, most likely through higher prices. Retailers, especially this retail giant, feel bad about that and don't want to pass on even higher fees to its customers. (The bigger concern for retailers and their shareholders not addressed in the release is that Americans will swallow only so much and, at some point, they will have to eat the swipe fees.) But still, U.S. consumers will bear the brunt of swipe fee increases.

Therefore, cap swipe fees, right?

We've seen this story before. When regulations limited debit card swipe fees, what happened? Retailer prices didn't fall, most evidence shows. Instead, banks started charging all sorts of fees for bank accounts and nixed many debit card rewards programs to make up for the lost revenue.

Who was the big loser then?

So, if a new settlement limits credit card swipe fees, what do you think will happen to those attractive credit card sign-up bonuses and rewards programs? What about no annual fee cards? All the while, do you think prices at your nearby Target or Walmart will go down?

Who's the big loser then?

Of course, the settlement's compromise to allow merchants to surcharge credit cardholders isn't very winning for the Everyman, either, if retailers take advantage of it.

All of which means this: The American consumer doesn't have a dog in this fight. And the big loser, no matter the outcome of the settlement, is you.

So whose side are you on: Walmart's or Visa/MasterCard/the big banks'?

Follow me on Twitter: @JannaHerron

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2 Comments
Mike
August 04, 2012 at 3:00 am

A new twist on taxation without representation... it just isn't the government collecting the "tax"....