Tuesday Roundup: Swipe Fees

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There’s a huge debate now in Congress over bank credit card-swipe fees

Every time a retailer “swipes” a credit card to pay for a purchase, a bank collects a fee. The Dodd-Frank Financial Reform Act would enforce federal rules that cap card-swipe fees at between 7 and 12 cents, quite a bit lower than the 44 cent average now. Banks with less than $10 billion in assets are exempt from this provision, but there is a question as to whether that exemption will work. 

Much to the consternation of liberal groups, Democratic Sen. Jon Tester of Montana is opposing the mandated reduction in swipe fees because he says it will hurt community banks. Without swipe fees, Tester argues, banks will have to raise fees for other services, or may just go out of business.

Tester pressed this argument yesterday in a Senate hearing with Federal Reserve Chair Ben Bernanke as a witness. “I’m talking about rural America here,” Tester told Bernanke Monday. “I’m talking about community banks and credit unions, that if they go away, it’s another nail in our coffin. It’s really important.”

Bernanke agreed with Tester. “There’s good reason to be concerned about it,” Bernanke responded. “It could result in some smaller banks being less profitable or even failing.”

Tester asked Bernanke if the exemption would work to protect smaller banks. “We’re still not sure whether it will work,” Bernanke told Tester. “There are market forces that would work against the exemption.”

Sheila Bair, Chair of the Federal Deposit Insurance Corporation, agreed. 

“I do think this is going to reduce revenues at a number of smaller banks, and they will have to pass that on to customers in terms of higher fees,” Bair said. “That’s going to happen. Is that the right result—is that the result that Congress wanted? You need to determine that, but I think that is what will happen.”

Tester’s legislation would suspending the swipe fee proposal for two years.

• The news gets worse and worse for the U.S. Postal Service. The Service owns 161,000 trucks nearing the end of their 24-year life cycle that need to be replaced. It would cost about $6 billion, money the Service doesn’t have. 

• Still on the apocalypse beat: The Urban Land Institute says we need $2 trillion to rebuild our transportation network. Ashley Halsey reports

The report envisions a time when, like Detroit, U.S. cities may opt to abandon services in some districts and when lightly used blacktopped rural roads would be allowed to return to nature. Eventually, the report says, the federal gas tax will be increased; local governments will be allowed to toll interstate highways; water bills will rise to pay for pipe and sewer replacement; property and sales taxes will increase; and private, profit-seeking companies will play a much larger role in funding and maintaining public projects.

• Sen. Max Baucus of Montana has introduced a bill that would create an Office of Rural Education Policy in the Department of Education, Education Week reports.

“The goal here is to allow rural schools to focus on students in the classroom rather than red tape in the bureaucracy,” Baucus, chairman of the Senate Finance Committee, said in a statement. “Students in rural areas deserve a fair shake at the resources and opportunities afforded to students who live in urban areas. In many of our rural school districts, the superintendent is also the high school principal—and may also coach or teach a class. Rural educators have told me they need a ‘one stop shop’ at the federal level to help address their unique needs, and this legislation does that.”

• Also from Ed Week, we learn that a group of senators has introduced legislation that would address the failure of another federal program, Investing in Innovation, to fund rural schools. 

The bill addresses a study by the Rural School and Community Trust finding that only four of 49 grantees were for innovations that were aimed at rural schools. 

• Sales at comparable Walmart stores fell for the eighth straight quarter, the company reported today. “Walmart U.S. customers are still stretched,” said company CEO Mike Duke. 

• The argument here is that the broadband divide isn’t rural and urban, but rich and poor. 

“If you really want to make a difference, you should be doing something to help low-income people get online, and those low income people live in more urban areas,” said economist Scott Wallsten at the Technology Policy Institute. “There are also rural poor people, too, of course, but the bulk of the people who are not online are in more urban areas that have access but for various reasons, they don’t subscribe, and in my opinion that’s where we should be focused.” 

 

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