President Reagan’s quote may sum it up best, “The nine most terrifying words in the English language are: I’m from the government and I’m here to help.” No truer words could be said in regard to state Senate Bill 933 by Sen. Jenny Oropeza (D-Long Beach). The bill has been passed by the general assembly and, as of press time, awaited action by Gov. Arnold Schwarzenegger. If he signs it, we will see that the bill was a wolf in sheep’s clothing.
Characterized as a “consumer protection” bill, SB 933 is anything but. The truth is that SB 933 is a clever attempt by credit and debit card company Visa to protect the billions of dollars in swipe-fee profits it receives from debit card purchases.
Visa controls more than 75 percent of the debit card market in the United States. It makes huge profits by charging merchants a swipe fee (technically called an “interchange fee”) for every debit card transaction. In 2008, Visa and the banks pocketed more than $48 billion in swipe fees.
As the operator of five Arco ampm locations employing 70 people in the L.A. area, I know first-hand that this legislation will limit consumers’ choices and impair my ability to conduct business. SB 933 causes me great concern. If the proponents of the bill truly want to protect consumers, they would not prohibit retailers from disclosing the real cost of swipe fees or consumers from choosing the lowest payment option.
After wages and facility operations, swipe fees represent one of the largest business costs for a retailer. Every additional dollar that retailers are forced to pay for Visa’s swipe fee is another dollar that can’t be used to hire employees. For some businesses, this can add up to the equivalent of paying the salary and benefits of one or two employees.
In fact, a small California bookstore said swipe fees can be the difference between profit and loss for a small business that does many debit card transactions each day.
Rather than regulating the source of the problem, which are Visa’s billions in swipe fee profits, SB 933 attacks California retailers by banning them from recovering these costs through a debit card surcharge.
Proponents of the legislation falsely assert that SB 933 prohibits merchants and retailers from charging a fee on customers for debit card purchases. When the truth is they are attempting to end-run the governor to sign SB 933 into law just as swipe fees are under attack in Congress, and by antitrust lawsuits filed by merchants and industry associations.
Furthermore, the Department of Justice’s Antitrust Division and the attorneys general of several states have also been investigating anticompetitive swipe fees.
Reduce transparency, shift costs
SB 933 would reduce transparency and shifts costs. Proponents apparently believe that costs associated with debit cards simply go away if prohibited by law. SB 933 would eliminate the transparency that currently exists through point-of-sale disclosure, shift the costs onto the backs of small businesses and put the big payment networks in a position to raise rates at will. (There was a 30 percent increase in April). Small businesses would suffer the brunt of increasing interchange fees, and consumers would pay more for all goods and services in order to subsidize those who use debit cards.
SB 933 also would limit consumers’ choice of payment options. As was the case with the ban on surcharges for credit card interchange fees, the bill would force some retailers to refuse acceptance of debit cards or establish minimum purchase prices (commonly $10) for acceptance. How are consumers best served by fewer options to make basic purchases?
To make matters worse, SB 933 is targeted solely at California consumers and businesses. State and local governments would continue to be allowed to impose a surcharge that in some cases is $25 or more for paying debts like parking tickets. The big utility companies would also be exempted, so your electricity bill may come at a higher cost. If utilities, and state and local governments are exempted from SB 933, because they cannot afford this bill, how do legislators expect that SB 933 will not hurt small businesses?
The deceptive nature of SB 933 is nothing short of a wolf in sheep’s clothing. There simply must be a better way to strengthen legal requirements to protect consumers. With the state’s current economic uncertainty, we hope the governor will place the sustainability of small businesses over the profits of Visa, and veto SB 933.
Martin Vallejo is a small-business owner and operator in Los Angeles County.
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