Credit card bill hurts the little guy

By Harry C. Alford

Americans used to shop mainly at locally owned stores, and the money we spent with local merchants supported other families in the community. All that changed when national retail chains started taking customers away from the entrepreneurs and family-owned retailers; sadly, many were forced out of business. Now these chain stores are lobbying Congress to pass a law that could finish the job — wiping independent businesses off the map in neighborhoods across the country.

National retailers are promoting legislation that would authorize them to band together and essentially take over the nation’s “electronic payments” system — the network of credit-card companies, banks and stores that allows customers to use a credit card at almost any retail location in the country. Officially called the “Credit Card Fair Fee Act,” it ought to be called the Chain Store Swindle Act, because it will boost the profits of the nation’s largest retail chains at the expense of nearly everyone else.

How could any member of Congress support such a bill? Well, with the economy in a recession and unemployment on the rise, voters are worried about making ends meet. Exploiting the situation, the biggest chain stores have cleverly concocted a convenient scapegoat: the banks and credit unions who issue credit cards. Even though the so-called interchange fee paid to financial institutions for handling electronic payments is a normal, and modest, cost of doing business for retailers — usually about 1.5 percent of the transaction amount — this fee is being blamed, magically, for everything from rising gasoline prices to layoffs.

If Congress examines the facts, there’s little doubt they’ll reject the chain retailers’ one-sided “solution.” The national chain stores argue that they will use their newfound power over the credit-card system to benefit struggling entrepreneurs and independent businesses — which is ironic, because big retailers have spent decades putting family-owned stores out of business.

In reality, independent retailers likely would be harmed by the new system, which would constrict credit to economically struggling neighborhoods as banks, community lenders and credit unions get squeezed out of the credit-card business. The credit system works because all sides have an incentive to participate; if the big chain stores get their way, the credit side of the equation might drop out, because the companies that issue credit cards to consumers and small businesses may decide it’s not worth the trouble. Small stores that don’t move as many units compared to chain stores may no longer be able to offer credit-card purchases to their customers — resulting in a sharp decrease in sales for independent retailers.

The bill also could hurt neighborhood banks, which serve as an economic foundation in countless lower-income neighborhoods across the country by making much-needed loans to consumers and small businesses. Such neighborhood financial institutions have thrived in part by issuing credit cards to their banking customers. If that business dries up, neighborhood banks could go the way of the locally owned grocery and hardware stores.

What about customers? The Chain Store Swindle bill guarantees zero benefit for their customers; whatever savings these corporations achieve will go straight toward boosting their profits. In fact, there’s reason to believe consumers actually would be hurt by the bill: when Australia imposed similar regulations, cardholders soon were paying higher credit-card fees and interest rates — and losing the discounts and other benefits of special incentive programs.

Nonprofit groups could suffer from the proposed legislation, too. Many put their names on “affinity” cards that provide rewards to members and revenue to the group, funded by special interchange rates. Those programs could be wiped out.

If the big chain stores win this battle, the neighborhood bank on the corner, the family-owned restaurant down the block and the dry cleaner next door all could be gone, along with the economic vitality and financial stability they contributed to the neighborhood. At a time when both are in short supply, that would truly be a shame.

Harry C. Alford is president and CEO of the National Black Chamber of Commerce.