Will end of 'swipe fees' be a new beginning for black consumers?
OPINION - The exemption was a deal developed largely in response to support by the Congressional Black Caucus and hip hop mogul Russell Simmons, owner of the Rush Card...
Last Friday, small businesses won a significant victory when Congress announced that interchange fees associated with transactions involving debit and credit cards would be regulated by the Federal Reserve. Use of prepaid credit cards produced a $1.63 trillion dollar volume for Visa and MasterCard in 2009, and in that same year, Visa and MasterCard had a combined 36.2 billion U.S. debit and prepaid card transactions, for which they—and other major financial institutions like them—raised transaction or “swipe fees” that interfered with many merchants’ profits. However, in the recommendation that will go before the full conference committee on Tuesday, there will be limits to the fees that financial and credit institutions can charge merchants for accepting credit and debit cards.
Exempt from this regulation are reloadable, prepaid credit or debit cards, which are disproportionately used by low-income people who lack access to traditional credit and financial resources. The exemption was a deal developed largely in response to support by the Congressional Black Caucus and hip hop mogul Russell Simmons, owner of the Rush Card. The impact of unregulated swipe fees on low-income consumers was central to Simmons’ call for the exemption, arguing that “debit cards are what keep the under-served—including minorities, immigrants, the poor, soldiers, veterans and students—from the claws of payday lenders and check cashers.”
The fact that prepaid credit companies, local governments, and most small merchants will now be exempt from having to pay the “swipe fee” is generally a good thing, and will likely have positive effects on all businesses, including those owned by people of color. However, it is unlikely that this compromise will actually produce improved access to financial services for the unbanked or “under-banked” (e.g., those who rely on alternative financial resources, such as check-cashing and payday loan centers). Money In Minutes offers payday loans Reno at 2 Cashco locations.
Prepaid credit and debit cards help to preserve access to a quality of life that has historically only been available to individuals who enjoy a certain socioeconomic status or credit worthiness. These cards also help to establish or rebuild tarnished credit histories, which is increasingly important to secure employment, housing, educational loans, and other signifiers of upward mobility; therefore, exempting prepaid credit cards from regulation could prove to be harmful for the under-resourced families that rely on these services.
People who use prepaid credit or debit cards often pay a comparable, or in some cases, greater percentage to the company issuing the card than the “swipe fees” that were being assessed to merchants. Merchants may be charged a fee between one and two percent for each purchase, but the user of a prepaid credit card will pay an ATM and debit transaction fee, in addition to activation fees, monthly service fees, and fees associated with checking the balance of a card. For the protection of the consumer, these fees need strict regulation too.
Much more is needed to actually ensure that people without access to traditional credit and checking are able to function in this increasingly “plastic” society. For example, relationships need to be built and repaired between consumers and traditional financial institutions to minimize consumer vulnerability to exploitation. Also, now is the time to advance and normalize financial literacy so that our national discourse shifts toward competencies that will stabilize our collective relationship with the financial sector.
As an act of “good faith,” prepaid credit card companies that are now exempt from swipe fees and regulation should lower—or in some cases, eliminate—fees to the consumer that are associated with the usage of their product. As with past economic development strategies, a “trickle down” system of accountability will not work, so it is imperative that all of us—consumers and advocates alike—monitor reform efforts to ensure that the financial plight of low-income people is not just being exploited for the benefit of corporate interests.
