Imagine paying somebody to take your money. To you and me, such a concept may seem unreasonable.
But to a growing number of retailers making money from your debit card, this makes sense – lots of cents.
And it is happening only because of a legal loophole.
Here’s what is occurring: Retailers statewide are increasingly adding on “checkout” fees when consumers use their debit cards to make purchases. Put another way, consumers are paying millions, on top of the price of the goods they’re buying, simply so the retailer will accept an electronic money transfer.
Current California law prohibits merchants from applying checkout fees to credit card purchases. But the law is silent on debit cards, allowing merchants to bill debit card users an additional fee set by retailers.
To halt these debit card surcharges, I authored Senate Bill 933. It has been approved by the Legislature and awaits action from the governor. Contrary to the op-ed published in the Business Journal’s Aug. 23 issue (“Debit Card Measure a Swipe at Small Business”), the bill would be good for California.
The issue is simple fairness. A basic rule of good business is that the price on a store window for a carton of milk, or the cost of gas on the sign in front of a service station, should be the price we pay when checking out.
Instead, consumers find themselves paying, say, $3.50 or more at checkout for a gallon of milk that was advertised at $3, simply for using their debit card. Or $3.25 for a gallon of gas advertised at $3.02. Such debit card surcharges can spike prices by 20 percent or 30 percent and, again, are set by retailers themselves without any limits.
For example, BP-Arco, which opposes SB 933, places a 45-cent fee on debit card purchases for gasoline at their stations, no matter how many gallons are bought.
As consumers increasingly use debit cards more than cash, checks or credit cards, checkout fees add up to big dollars in a short time.
Consider how debit card fees are hitting the most vulnerable among us:
• The U.S. Department of the Treasury distributes Social Security and veteran’s benefits through what it calls a Direct Express debit card.
• The state Department of Employment may soon issue unemployment checks via debit card.
• The Department of Child Support Services recently began issuing child support payments via a debit card. A similar change is pending for state residents receiving disability payments.
The bottom line: It’s outrageous to allow retailers to impose extra fees on those who are unemployed or on disability or are senior citizens simply because they use debit cards.
The consumers I know care only about the final price they have to pay, and they have a right to know what that is up front. How a company tabulates that behind the scenes is irrelevant. Disparaging the motives of those of us who want to help consumers misses the point.
The way debit card payments work, retailers pay a fee that covers the costs of processing an electronic transaction between the various financial institutions and card networks.
While it is understandable that retailers want to minimize their business costs, the recently approved federal financial services reform bill requires, for the first time, that these interchange fees be “reasonable and proportional” to the processing costs incurred.
That helps retailers reduce their costs, but it does nothing to protect Californians from added-on checkout fees.
The fact is it makes good business sense for retailers to accept debit cards. Making it easier for consumers to spend more is what retailers want. They should, however, do so in the same way they handle credit cards — without additional fees.
In other words, retailers accept debit cards because it is a profitable business practice yet many shamelessly still charge consumers.
As it now stands, retailer-imposed checkout fees on top of advertised sticker prices are costing consumers hundreds of millions of dollars. This is hitting lower-income families the hardest, especially those using government-issued cards.
Many business and consumer groups agree retailer-added checkout fees are unfair. Supporting SB 933 are the California chapters of the AARP; Consumers Union; Consumer Federation of California; Consumer Action; National Employment Law Project; Center for Responsible Lending; and several local chambers of commerce, including the San Francisco, San Jose and California Hispanic and California Black chambers. That is why this measure passed both the Senate and Assembly with bipartisan support.
At a time when California working families already face tough challenges making ends meet, they shouldn’t bear penalties for simply how they choose to pay. Fair is fair, whether it’s by cash, check, or credit or debit card.
Jenny Oropeza, D-Long Beach, is a state senator representing the 28th District, which includes Carson, Redondo Beach, El Segundo and Marina del Rey.
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