Senate Passage of Credit Card Tranaction Reform.

[frank22]

http://www.businessweek.com/news/2010-05-1...curb-debit.html

 

quote] The amendment permits retailers to offer discounts for cash, checks or debit cards, or for a particular card brand, and would let merchants set minimums and maximums for credit-card purchases.

 

“It will prevent the giant credit-card companies from using anti-competitive practices, allow merchants to offer discounts to their customers and restore common sense and fairness to this broken system,†Durbin said in a statement

 

I know this will not change anyone's views on the matter, but it will take away some people's main argument. Some people's main argument was "the rules are the rules and the merchants are breaking them, end of story". If this does become law, there will be no end of story.

 

Some people also said that present law allows for merchants to offer a discount. It does, but the rules were set up by banking lobbyist to be so impractical they were never used. Now we will be able to see the difference. I would very much like to be able to get a discount on paying cash as a matter of course.

 

Merchants do receive a benefit for accepting cards and they are not going to want to alienate customer to save a few cents. This just allows a balance to take place for them to decide how they handle this cost, and now they won't be hamstrung into being told how to do it. More importantly we will have a choice to save a little or to have the convenience of using cards.

 

I think what will happen is that smaller merchants will see their swipe fee for small transactions come down enough so that small transaction will be made more profitable, in this case the customer and merchants will be both better off. Visa was using the merchant to hide the fees the consumers were charged, now they can't hide behind them as much.

Edited May 14, 2010 by frank22

[breeze]

Just remember not to take this discussion off in a political direction.

[hegemony]

as if these merchants would pass savings on to consumers

 

what next? gov't limit water bills?

[frank22]

as if these merchants would pass savings on to consumers

 

what next? gov't limit water bills?

 

 

The law requires that the be allowed to offer discounts for cash, so yes I believe I will get an actual discount. Merchants still must compete, and although some merchants could conceivable raise the price on CC transaction to make the discount meaningless, I do not believe most will.

 

Although some might not directly reduce the price, normal competition will take place. Some merchants will, some won't, just like other costs. In general lower costs for business do result in lower costs for customers, or as other costs rise, they will be less likely to need to raise prices them if this cost has dropped.

 

To those small merchants who said the small purchases were unprofitable. No they will not directly reduce prices. They will just not be forced to lose money. Seems fair. I think the consumer will save money in the long run, or have more choices, but if the merchants were forced to eat something they shouldn't have had too and now they don't , I am OK with that too. Really I was all about the supply and demand curve on prices, once we get that whatever VISA wants to charge I am OK with. They now will be able to charge what I will want to pay and putting a middle man in the mix to avoid it will be harder to do.

Edited May 14, 2010 by frank22

[Jessep28]

This provision wasn't in the House version of the financial reform bill, so there is a chance this could be modified or deleted during reconciliation of the bill between the two chambers.

[breeze]

My guess - the fees will go up over-all, to make up for the revenue the processors lose because of the new regs. They are publicly held companies, they have to make money for their stockholders.

[frank22]

My guess - the fees will go up over-all, to make up for the revenue the processors lose because of the new regs. They are publicly held companies, they have to make money for their stockholders.

 

It will be real interesting to see the fallout if it passes. One thing is the processors are a middleman between the merchant and Visa and banks. They could get squeezed pretty good because they are probably weaker than the other two? 2Fast may be able to offer some perspective. Essecntially the banks are losing momoplistic power and will have to respond and maxiize revenue based on the new facts. The mostly fixed costs mean that encouraging use, even at somewhat lower per unit profit, probably will result in more profits than if they raised them.

 

I don't think they can just raise fees in response. It would make things worse by making using cards more expensive, and just at a time when consumers and merchants have more options. I posted their costs in another thread, gross margins of 80% are unheard in but a few industries. Their goal was always to encourage the automatic use of cards and they will not want to have people stop and think about it every time if they can help it. Merchants also benefit from cards use, they were just upset over the rising costs (and of course the small merchants don't like the swipe fee). They will try to minimize the inconvenience and costs to consumers. Their livelihood depends on it, most merchants will not want to take full advantage of the situation because it would hurt them.

 

I read one analyst who still rated Visa/Mastercard a buy because the long-term decline in cash usage still means continued growth. They will not want to do any harm to these trends by raising prices or make things more complicated.

[Jessep28]

Banks will see some revenue loss offset with increased foreign ATM fees if merchants start pushing cash. Plus, it doesn't apply to credit card transactions, so those fees will remain in tact.

Edited May 14, 2010 by Jessep28

[frank22]

Banks will see some revenue loss offset with increased foreign ATM fees if merchants start pushing cash. Plus, it doesn't apply to credit card transactions, so those fees will remain in tact.

 

 

Nothing happens in a vacuum. Banks just can't go raising prices willy nilly. I bet banks already have set prices to maximize profits on ATM fees. To raise them higher would be counter-productive.

 

If Sony started making less money on TV's do you think they would go and raise prices on DVD players to make up for it? Everyone saying the banks will just do this or that makes it sound like they will go off in a tiff to spite us. They won't because it will end up biting off their nose. They will talk a game for awhile, but when things settle down they will still be making huge profits, we will have some choice, and life will go on almost as it does now.

Edited May 14, 2010 by frank22

[Jessep28]

Banks will see some revenue loss offset with increased foreign ATM fees if merchants start pushing cash. Plus, it doesn't apply to credit card transactions, so those fees will remain in tact.

 

 

Nothing happens in a vacuum. Banks just can't go raising prices willy nilly. I bet banks already have set prices to maximize profits on ATM fees. To raise them higher would be counter-productive.

 

 

They wouldn't need to raise ATM fees. ATM volume would go up if more people were forced to use them for cash since they can't pay with a debit card.

[frank22]

They wouldn't need to raise ATM fees. ATM volume would go up if more people were forced to use them for cash since they can't pay with a debit card.

 

 

Sorry, that one when right by me.

 

I don't think they will be held back from using a debit card, I think the price will just be cheaper though?

 

I still don't think people will be pushed to cash, I really believe the fallout is not going to be what the nay sayers predict. There is too much riding on it.

 

My focus has always been on the credit card fees, I guess that is only half of this part of the reform though. I never use my Debit card, it is really too dangerous. I think I would rather use cash then the potential headache of needing to worry about holds and double withdrawals because of mistakes.

[hegemony]

what a way to screw the consumer.

 

I guess this will help unprofitable businesses hang on a little longer.

 

there is no monopoly. merchants can simple not take credit cards. it is a free market. even if a merchant decides to take credit cards it is a free market as not all processor fees are the same.

[hegemony]

so with this proposed law merchants will be able to charge credit card uses more but also still deduct the cost of accepting credit cards from their taxes? criminal!!!!

 

there should be some way to prevent double dipping.

[frank22]

so with this proposed law merchants will be able to charge credit card uses more but also still deduct the cost of accepting credit cards from their taxes? criminal!!!!

 

there should be some way to prevent double dipping.

 

 

Are you joking?? Any cost to them is not income and like the cost of anything would not be taxable, but IF they charge more for cards(I don't think they will), it would be income(IF they charged more than the cost), and thus they would pay tax on it.

 

They will only pay tax on their income. Taxes is not an issue here either way. I think you are really, really reaching here.

 

ETA: Your throwing everything you can up in the air and seeing if anything sticks, if you go one step beyond the one liner most everything doesn't. It really, really isn't going to be that bad. You will still use your cards and I really think it won't cost any more than it does now, now you will just be able to pay cash at some places to save a few bucks. Yeah for the consumer!

Edited May 15, 2010 by frank22

[hegemony]

so with this proposed law merchants will be able to charge credit card uses more but also still deduct the cost of accepting credit cards from their taxes? criminal!!!!

 

there should be some way to prevent double dipping.

 

 

Are you joking?? Any cost to them is not income and like the cost of anything would not be taxable, but IF they charge more for cards(I don't think they will), it would be income(IF they charged more than the cost), and thus they would pay tax on it.

 

They will only pay tax on their income. Taxes is not an issue here either way. I think you are really, really reaching here.

 

ETA: Your throwing everything you can up in the air and seeing if anything sticks, if you go one step beyond the one liner most everything doesn't. It really, really isn't going to be that bad. You will still use your cards and I really think it won't cost any more than it does now, now you will just be able to pay cash at some places to save a few bucks. Yeah for the consumer!

if a purchase is less expensive for someone who uses cash but I use credit the merchant gets more $$ from me and can deduct the costs of accepting credit cards from their taxes. double dipping should be disallowed if there is going to be "reform" like this.

 

perhaps the merchants' lobbies need to learn what free market means and simply tell their members who don't want to pay for credit cards acceptance to only take checks and cash?

Edited May 15, 2010 by hegemony

[hegemony]

why did the merchants not want American Express and Discover cards covered by the bill?

[frank22]

if a purchase is less expensive for someone who uses cash but I use credit the merchant gets more $$ from me and can deduct the costs of accepting credit cards from their taxes. double dipping should be disallowed if there is going to be "reform" like this.

 

perhaps the merchants' lobbies need to learn what free market means and simply tell their members who don't want to pay for credit cards acceptance to only take checks and cash?

 

If a merchant gets say .25 cents more from you because you are using a card, he then pays .25 to Visa. He has not made anything and will not pay tax. The .25 would be revenue to Visa and they would pay tax on it after they deduct their expenses and payment to the banks. If he takes .25 from you and pays the bank only .20 he will have .05 in income AND WILL PAY TAX.

Edited May 15, 2010 by frank22

[hegemony]

if a purchase is less expensive for someone who uses cash but I use credit the merchant gets more $$ from me and can deduct the costs of accepting credit cards from their taxes. double dipping should be disallowed if there is going to be "reform" like this.

 

perhaps the merchants' lobbies need to learn what free market means and simply tell their members who don't want to pay for credit cards acceptance to only take checks and cash?

 

If a merchant gets say .25 cents more from you because you are using a card, he then pays .25 to Visa. He has not made anything and will not pay tax. The .25 would be revenue to Visa and they would pay tax on it after they deduct their expenses and payment to the banks. If he takes .25 from you and pays the bank only .20 he will have .05 in income AND WILL PAY TAX.

 

the tax offset is not on each transaction is it? so a merchant that is profitable overall can use total swipe fees for the year. I am not tax law expert so if this is incorrect please let me know.

[frank22]

if a purchase is less expensive for someone who uses cash but I use credit the merchant gets more $$ from me and can deduct the costs of accepting credit cards from their taxes. double dipping should be disallowed if there is going to be "reform" like this.

 

perhaps the merchants' lobbies need to learn what free market means and simply tell their members who don't want to pay for credit cards acceptance to only take checks and cash?

 

If a merchant gets say .25 cents more from you because you are using a card, he then pays .25 to Visa. He has not made anything and will not pay tax. The .25 would be revenue to Visa and they would pay tax on it after they deduct their expenses and payment to the banks. If he takes .25 from you and pays the bank only .20 he will have .05 in income AND WILL PAY TAX.

 

the tax offset is not on each transaction is it? so a merchant that is profitable overall can use total swipe fees for the year. I am not tax law expert so if this is incorrect please let me know.

 

It would not be a one to one offset per se, but the effect would be the same, in my example I could have used multiple transactions. He would claim his total income and his total expenses, his income would include the swipe fee and his expenses would include the payments to Visa. They would offset each other. He would not be earning anything extra and not claiming it as income.

 

Note: Although this won't change anything the reality is the mechanics might be a little different. The bank probably deposit into his account the money due to the merchant less the fees, so he would not even claim it as income, but then he wouldn't even deduct it. Taxes are not an issue here.

 

I am an accountant and have worked on corporate tax returns, but not in the retail industry(I am not claiming to be an expert)

Edited May 15, 2010 by frank22

[hegemony]

I am just a consumer who does not look forward to paying more for retail purchases.

[frank22]

I am just a consumer who does not look forward to paying more for retail purchases.

 

 

Me too, I don't think we will pay more overall. It is really about choice and I think we will have more. The banks have put the merchants in between us and that is why they have been able to charge much more than the normal market would allow. This just puts those forces back where they belong, the costs can only go down.

 

It won't be smooth, there will be some people who run across some small inconvenience and they will be OUTRAGED. In the scheme of things it won't add up to much(except Creditboards threads), because these outrages will be offset by less costs somewhere else(there won't be any Creditboards thread on this, well maybe by me).

 

The early going will not be the final outcome. There will be some messiness, and bank squawking on how it is going to hurt the consumer. They will come around quickly after it is implemented, because they will then decide to do business in the new environment. That will mean making it as painless as possible to the consumer, the merchants will for the most part want the same thing.

Edited May 15, 2010 by frank22

[hegemony]

I think you might be overly optimistic that consumers will see lower costs anywhere in the retail sector. if anything consumers will be losing as banks raise fees in other areas and reduce rewards on debit and credit cards.

 

but then the house still has to come up with a compatible amendment. the final form of any change is still unknown.

[LBCS]

I think you might be overly optimistic that consumers will see lower costs anywhere in the retail sector. if anything consumers will be losing as banks raise fees in other areas and reduce rewards on debit and credit cards.

 

but then the house still has to come up with a compatible amendment. the final form of any change is still unknown.

 

LOL, I don't remember merchants rushing to lower prices when the price of gas fell dramatically. I do remember everyone and their aunt raising prices using oil prices as their main excuse.

[breeze]

They'll charge whatever the market will bear, regs or no regs.

[hegemony]

They'll charge whatever the market will bear, regs or no regs.

 

same logic should be applied to the marketplace of merchant services...