Entries in Reform (4)


Swipe Card Reform: Are Consumers Saving Money?

Comstock/Thinkstock(NEW YORK) -- As the one-year anniversary of credit and debit card swipe fee reform approaches, a debate about whether shoppers are saving at the register as a result rages on.

The National Retail Federation (NRF) estimates that U.S. retailers and customers save $18 million a day thanks to reform that reduced the swipe or interchange fee -- typically a 1.5 percent to 3 percent charge -- paid to banks for credit card transactions.

The Durbin amendment, which lowered the so-called “interchange fees,” went into effect on Oct. 1, 2011, in response to financial reform on Wall Street.

The alleged savings though can be a bit squishy to identify.

“Merchants haven’t necessarily labeled the savings from reform as a ‘debit discount’ but they have nonetheless found a variety of ways to pass the value along to their customers,” NRF President and CEO Matthew Shay said in a statement.  “Depending on the store, shoppers are paying lower prices, getting better service or avoiding prices hikes that otherwise would have come with inflation.”

“Retailers are simply too competitive not to share savings with consumers because customer value is one of the key ways they take market share away from their competitors,” Shay said.

According to Bankrate, swipe fees revenue doubled from $30 billion to $60 billion from 2005 to 2011, while checking fees rose from $11 to $14 on average during the same period.  After labor, according to the Wall Street Journal, interchange fees are the largest expense for retailers.

But, the Electronic Payments Coalition (EPC), a payment industry group for banks, says consumers are being hit in other ways.

“Giant retailers lobbied Congress so they could pay less to accept a debit card, with a wink and a nod that they would lower prices for their customers.  One year later, ask yourself -- do you feel that you’ve seen lower prices?  Have you seen a discount for using your debit card -- which would have been the easiest and most direct way to fulfill their promise to Congress,” Trish Wexler, a spokesperson for EPC wrote ABC News in a statement.

According to a report by financial research firm Javelin Strategy & Research, credit card swipe reform cost banks $6.6 billion a year in lost revenue.

”More likely, you’ve seen your free checking disappear and increased fees as card issuers had to make up for $8 billion in lost revenue that supported these debit card programs.  Let’s just call a spade a spade -- this was a political handout to big-box retailers, who are now scrambling to make excuses for why they couldn’t pass these savings along to customers,” Wexler continued.

Since the fourth quarter of 2009 through June of 2011, the number of big banks offering free checking accounts declined by 54 percent, according to research firm Moebs Services.

Ed Mierzwinski, consumer program director for the advocacy group U.S. PIRG, says small banks and credit unions continue to offer free checking accounts and there’s no proof consumers are not saving money.

“Small banks are benefiting from swipe reform.  The industry has no proof that merchants aren’t passing savings along but the bank industry is trying to gain support for a horrible settlement that will allow them to perpetuate their horrible practice and continue to raise swipe fees,” Mierzwinski told ABC News.

Mierzwinski said many unfair practices by the banks have been changed by good regulation, including swipe fee reform on debit cards, recent Consumer Financial Protection Bureau-imposed penalties on credit card deceptive marketing and the 2009 Credit Card act that curtailed credit card companies late fees and restricts exorbitant interest rate increases.

“The banks and VISA and Mastercard credit card networks are using a cartel to gouge merchants with unfair swipe fees that were non-negotiable and the result is cash customers at the store are paying higher prices because swipe fees were going towards creating rewards for more affluent credit card customers,” says Mierzwinski.

Copyright 2012 ABC News Radio


Obama Official: Corporate Tax Reform Proposal Would Cut Rate to 28%

Alex Wong/Getty Images(WASHINGTON) -- The Obama administration is set to unveil a proposal on Wednesday that will call for lowering the country's corporate tax rate to 28 percent, a senior administration official tells ABC News.

Doing so would put the U.S. in line with its major competitors and encourage greater investment. At 35 percent, the nation's current corporate tax rate stands among the highest in the world.

The president's plan will also include cutting the effective rate on manufacturing to 25 percent, according to the official. Both deductions would be paid for by closing dozens of tax loopholes and eliminating subsidies.

Furthermore, the official says the proposal will introduce a minimum tax on foreign earnings to discourage moving jobs overseas.

Details of the plan will be announced Wednesday by the Treasury Department.

Copyright 2012 ABC News Radio


Social Security Spurs Debate in Debt Ceiling Talks

Comstock/Thinkstock(WASHINGTON) -- In a hearing addressing the long-term solvency of Social Security, members of a House Ways and Means subcommittee battled over whether or not reforms to Social Security will help alleviate the deficit crisis.  Rep. Xavier Becerra, D-Calif., defended Social Security, saying it has played no role in the mounting federal debt.

“Social Security has never contributed a dime to the nations $14.3 trillion debt, not a penny to our federal deficit or any year of our nation’s history, yet some in this town insist that we should cut Social Security benefits for seniors to pay for these deficits, deficits run up over the last 10 years principally as a consequence of fighting two unpaid for wars and giving unpaid for tax cuts to millionaires,” Becerra said.  “Most Americans would say it is immoral and un-American for this Congress to tax Peter to pay for Paul’s sins, to make retirees, widows, disabled workers and children who rely on Social Security pay for the Bush debt.  How can that be right?”

Republicans countered Becerra’s argument, saying the president and public have recognized Social Security is a problem which needs to be addressed.

“We have a lot of attention today because I think the president has recognized this as an issue that should be talked about, should be debated.  Everybody I’ve talked to back in North Dakota is concerned about Social Security, and I think it’s been used as a political football by different people, different interests all along,” Rep. Rick Berg, R-ND, said. “Why are we in this debt crisis right now today? We’re in it because we’ve got 14.3 trillion in debt, and we don’t have any more money.”

“Social Security needs cash, and I don’t know where Treasury gets the cash to redeem the bonds.  In times of this deficit, Treasury has to borrow it. Today the U.S. borrows 40 cents for every dollar it spends, much of it from the Chinese and sends the bill to our children and grandchildren, and part of that’s to cover social security,” Rep. Sam Johnson, R- Texas, said.

“I appreciate the chairman’s continuation on this subject, and I look forward to working with him and our ranking member here when he realizes we’ve got a problem and tries to help us fix it,” Rep. Aaron Schock, R-Ill., said.

Panelists before the subcommittee presented suggestions to reform Social Security, from raising the retirement age to restricting growth in benefits after a certain age.

Copyright 2011 ABC News Radio


How Much Transparency Can the Stock Market Take?

Comstock/Thinkstock(NEW YORK) -- When Congress passed a sweeping Wall Street finance reform bill last year, it was supposed to shed some sunlight on the activities of hedge funds and the complicated derivatives that helped lead to the financial crisis in 2008.

And one year after the bill's passage, and after tireless lobbying by the banking industry and the New York congressional delegation, the new rules have been postponed for six months. Regulators at the Commodities Future Trading Commission have until the end of December to work out the details and publish a final disclosure rule before companies have to comply.

How the rules are finally written and published will have a great effect on how transparent the financial industry will be forced to be.

And while Democrats voted for the financial reform, every single New York lawmaker has come out against the interpretation of the new derivative rules, including Sen. Charles Schumer, D-N.Y.

"We are concerned that these proposals will inevitably result in significant competitive disadvantages for U.S. firms operating globally. The proposals are inconsistent with congressional intent regarding the territorial scope of the new regulatory framework for derivatives," the lawmakers wrote in a joint statement.

Before the 2008 financial crisis, large private money groups, or hedge funds, used anonymity and complex mathematical formulas, or derivatives, to hide their investment strategies from the rest of the market.

Derivatives -- once a financial trading tool used by farmers to reduce the risk of growing a yearly crop in unpredictable weather -- were adopted by bankers on Wall Street years ago as a way to bet on everything from the price of corn to the supply of oil. Southwest Airlines used derivatives to lock in the price of airline fuel, making it cheaper to gas up its planes when oil price sky rocketed.

But reckless betting can leave collateral damage. Leading up to the housing crisis, many banks used derivatives to bet that people would always repay their housing debt. That's when the trouble began.

The Dodd–Frank Wall Street Reform and Consumer Protection Act passed in 2010 requires companies that trade in some form of derivatives to register with the Commodities Future Trading Commission and to trade derivatives on an open exchange.

Reform-minded thinkers argue that transparency in derivatives trading will bring stability to the market. They say that while price instability may bring gains to a few investors, that sharp price fluctuations have the potential to hurt everyday people.

New reforms would allow government regulators to see the entire derivatives market, and could allow them to forecast an impending crisis. But some on Wall Street are afraid that too much transparency will give away their secret sauce.

And with new rules coming into effect in the United States, many who are reluctant to adopt new rules here want similar rules passed in other countries -- the goal is to create a level playing field. Like companies that move their headquarters to the country with the lowest corporate tax rate, critics of the regulations fear that investors will simply move their operations to countries that have the least restrictive rules.

The Obama administration is in favor of derivatives reform but is also pushing for adoption of international derivative standards.

"The United States has taken an important leadership role in comprehensive reform of the over-the-counter derivatives market. Alignment with Europe and Asia is essential," said Treasury Secretary Timothy Geithner in Alabama at the International Monetary Conference.

Still, there are some in the financial community are tentatively behind the idea of transparency, such as the Managed Fund Association, a trade group that represents hedge fund managers.

"Our members fully support improving transparency in the financial system, as well as ensuring that regulators receive the information they need to oversee the swap markets. We just ask that proprietary information given to regulators be adequately protected and kept confidential," said a spokesman for MFA.

Copyright 2011 ABC News Radio

ABC News Radio