Why would Congress want to hurt small businesses, including those here in Montana, to help big banks on either coast amass huge profits? Some members of Congress are contemplating repealing reform of the debit-card business that brought competition to a murky industry long rigged in favor of the banks. That's bad news for small local businesses like mine - I manage the Montana State University bookstore - because reform hasn't even touched credit cards yet, where we are still taking a beating.
Here''s how the banks squelch competition at the expense of consumers and small businesses: Visa and MasterCard so dominate the credit and debit card business that they can price-fix the fees their member banks charge merchants for processing customer transactions. And, without much competition, those fees are set at outrageous levels. So when our students buy a textbook for a class or a sweatshirt with the university logo and swipe a credit card at our checkout, the banks that issued their cards gouge us and the customer through the resulting "swipe fee." Six years ago, Congress decided to reform this insidious practice for debit cards and give small businesses and their customers a break. By introducing a little bit of competition to the debit-card business, Congress helped lighten the crushing burden on small businesses and lower prices for consumers.
Debit reform required that retailers have a choice of two competitive, unaffiliated companies to process debit-card purchases and limited how high banks can fix prices as an incentive for them to compete on fees. The banks complain and demand Congress repeal reform yet are still charging an average 500 percent markup on debit-card processing fees, according to the figures they report to the Federal Reserve. And fees on credit cards, not subject to reforms, run much higher.
The college-bookstore business has already gone through major changes. We face intense competition from online retailers in everything we sell, from textbooks to laptops to apparel. Rather than surrender, we have embraced this competitive market and offer students price comparison and marketplace shopping on our website, allowing students to see our textbook prices and those of our competitors.
As a result, 93% of our students last fall who compared prices on our website chose to purchase their textbooks from the MSU Bookstore. Yet swipe fees cost us 2 percent of our net sales, which may not sound like much until you consider that our net profit margins are only about 2 percent as well. The fees are now one of our largest operating costs. We pay the same amount in rent, for instance.
Consequently, we have to raise our prices to cover these enormous swipe fees. And that means college gets even more expensive for our students. We're unusual in that we are not an official part of the university. It doesn't subsidize us - the students and professors who own us cooperatively and the employees, like me, are on our own. Two dozen full-time jobs are on the line, plus 50 part-time jobs for students.
And of course it's not just bookstores. Small retailers all over the country - diners and dollar stores and gas stations and grocers - face the same ballooning swipe fees. The fees keep retailers from expanding, boosting a sluggish national economy and creating much-needed jobs.
Just modest reform of debit cards saved consumers $6 billion and supported more than 37,000 jobs in 2012 alone, the first full year with the reforms in place. Think how much more that would be if we brought competition to credit cards, too. Bozeman is booming, but the rest of the state not as much. Why would we want to let the big banks exploit and gouge our small businesses when we need them more than ever?
Let's think more about what''s good for our Montana small businesses and oppose the big out-of-state banks that want to continue to exploit us. Congress must save debit reform, then it should bring competition to credit cards. Mr. Frisby is general manager of the Montana State University bookstore and president of the National Association of College Stores