In California, Governor Arnold Schwarzenegger vetoed a bill that would have forbidden businesses to charge fees for debit card use. Small business owners view this action as a victory which will save them from significant financial loss.
Previously, California consumers had been complaining about the swipe fee some merchants charged customers who paid with a debit card. Businesses are prohibited by law to charge customers for paying with a credit card, so debit card users claimed discrimination.
On the other hand, business owners cited the high interchange fees they are charged by payment processors. Usually, merchants have to pay 1% to 2% of purchase price to the debit card issuer. They reasoned that they were simply passing their debit card fees on to the consumers.
The burden on business owners might change. Recently passed legislation is set to reduce the amount retailers have to pay for debit card purchases. The Credit Card Accountability, Responsibility, and Disclosure Act empowers the Federal Reserve to set a fee cap for debit card use.
Meanwhile, Governor Schwarzenegger said he opposed the bill to end debit card fees because it would harm businesses and consumers. If businesses could not charge extra to debit card users, they would simply pass along their extra debt to all consumers. They would be forced to increase their prices for goods and services, thereby affecting all customers, not only those who pay with debit cards.
Interestingly, Visa, which controls about 75% of the country’s debit card market, supported the bill.
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