Side Swiped

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Side Swiped
Oligarc Organic Wine and Spirits owner George Kbulchyan with a customer at his shop in Hollywood.

Faced with rising charges from banks for his customers’ use of debit cards, Hollywood liquor store owner George Kbulchyan did what other businesses have done: He charged for every swipe.

But Kbulchyan’s customers quickly learned how to avoid the extra 50 cent charge: They switched to credit cards. The law prevents Kbulchyan from surcharging on those.

The problem is that credit card payments take at least two days to process, while debit card transactions only take one day. So each time a customer switched to a credit card, it meant that Kbulchyan had to wait longer to get his money.

Last month, however, Kbulchyan bowed to customer pressure and dropped the debit card surcharge at his Oligarc Organic Wine and Spirits store.

“I’m not thrilled about having to drop it, but the hassle of dealing with customers upset with the surcharge was too great,” Kbulchyan said. “I’m just going to have to eat the bank charges.”

Soon, if one state lawmaker has her way, every retailer in the state that levies a debit-card swipe fee will have to drop it. A bill is making its way through the Legislature banning these surcharge fees; it is expected to go before the full Senate later this month.

The author of the bill, state Sen. Jenny Oropeza, D-Long Beach, touts SB 933 as a consumer protection measure. Consumers Union and other consumer groups are listed as the bill’s chief sponsors. Visa is a chief supporter of the bill.

“It is unfair for retailers to lure consumers with an advertised price, only to later tack on a surcharge, increasing the purchase price for consumers,” Oropeza said in the statement introducing her bill.

But business groups say a ban on debit card fees will put the squeeze on mom-and-pop business owners such as Kbulchyan because they have to pay a fee, typically 30 cents to 70 cents, for each debit card transaction.

“By prohibiting a small retailer from covering the transaction costs, SB 933 puts the local bookstore or family-owned and -operated restaurant between a rock of rising transaction fees and the hard place of a ban on covering that cost,” said John Kabateck, executive director of the California chapter of the National Federation of Independent Business.

However, as Kbulchyan’s business shows, Oropeza’s bill may only speed the inevitable as the customer outcry mounts over the debit card fees. In most cases, the fees average about 50 cents per transaction, although one Baskin Robbins ice-cream store franchise in the Fairfax district charges a 75 cent “convenience fee” for the use of a debit card.

Many merchants have reluctantly decided not to levy debit card fees, concluding the money isn’t worth the hassle.

“We don’t charge fees for either credit or debit cards,” said Natalie Compagno, co-owner of Traveler’s Bookcase, an independent bookstore near the Beverly Center in Los Angeles. “We just absorb the fees that the banks charge us.”

Compagno said the store sets its prices with that situation in mind. She does not have a minimum purchase requirement for debit cards.

“People use their debit cards for so many things, even $5 purchases,” she said. “It’s kind of hard to make them pay cash.”

One of the few large retailers to go on record opposing Oropeza’s bill is BP Arco, which imposes a 45 cent debit-card swipe fee at all its gasoline service stations and am/pm minimarts. BP Arco has about 300 service stations in L.A. County.

“The bill would require Arco dealers and franchisees to incur the cost(s) … that are imposed by credit card companies and payment networks,” BP Arco stated in testimony to a Senate committee that passed the bill in April.

Nationwide, retail groups have long fought the imposition of bank fees. They recently formed the Merchants Payments Coalition to push for legislation on the federal level to rein in the bank fees.

The National Retail Federation, a coalition member, opposes Oropeza’s bill. Mallory Duncan, general counsel for the National Retail Federation, claimed the bill is part of a campaign by Visa Inc. to prevent retailers from letting their customers know that banks and credit card companies charge for card use.

A Visa spokeswoman denied Duncan’s characterization.

Visa issued a statement to the Business Journal last week saying that the bill would prohibit retailers from imposing what it called “surprise checkout fees” when debit cards are used.

“It is wrong to punish hardworking California consumers, especially those on fixed incomes and those receiving state benefits on pre-paid cards, with a surprise fee just for using a debit card and try to dictate how a consumer should pay,” Visa said.

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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