Don't Let Big Banks Obstruct Swipe Fee Reform
Debit swipe fees now cost American businesses over $16 billion a year, and exorbitant fees on debit transactions have a disproportionate impact on small businesses. Last year, Congress passed an amendment in the financial overhaul to rein in excessive swipe fees, but the rules set to go into effect in July are facing an all-out assault from big banks and card companies.
The country observed National Small Business Week in May (see the Presidential Proclamation). The Main Street Alliance marked the occasion by releasing its “State of the Small Business Nation – 2011.” This white paper includes a “Small Business Top Ten List” of concrete policy opportunities to level the playing field for small businesses and help them create jobs.
While pundits and politicians like to label policies “pro-business” or “anti-business,” as if there were one unified business interest, the reality is that policies that make winners out of some businesses make losers out of others. As Bruce Josten, the chief lobbyist of the U.S. Chamber of Commerce, put it, “You’re never going to have one hundred percent unanimity. Never. There is inherent tension… I laugh every day when someone calls and asks what does the business community think.” (1)
While Mr. Josten pointed to tensions between oil and gas companies, wholesalers and retailers, investment banks and retail banks – all big corporate players – his point applies even more so to the dynamics between big business and small business. While pundits and politicians like to lump all business interests together, the truth is that policies that benefit large corporate players very often tilt the playing field against small businesses.
In a cover letter to President Obama, senior administration officials, and congressional leaders on May 18, Main Street Alliance business leaders wrote:
Our members come from states across the country and a wide range of sectors, but we are united by a common set of values – small business values. We believe in what we do, we stand by our products and services, and we want people in government and corporate leadership who do the same. We stand for fair play and a level playing field. We stand for having each other’s backs. We believe America’s future prosperity depends on everyone contributing their fair share.
These small business values are what guide our business decisions and our commitment to advancing policies that fulfill the promise of an economy that works for all of us – small businesses, our employees, and the communities that sustain us.
(1) James Verini, “Show Him the Money,” Washington Monthly, July/August 2010, http://www.washingtonmonthly.com/features/2010/1007.verini.html
On May 19, Main Street Alliance members from Louisiana and Maine were joined by Senator Dick Durbin on a conference call highlighting the disproportionate impact of debit card swipe fees on small businesses. Rules limiting swipe fees, passed last year and set to go into effect this summer, are now under attack from the banking lobby, with an amendment under consideration to delay the rules from taking effect for up to 24 months.
Here are a sampling of quotes from speakers on the call:
Mary Noel Black, owner of The UPS Store at Citiplace in Baton Rouge, LA:
“This system is broken and small businesses are paying the price in constantly increasing debit swipe fees. Small businesses have the least leverage, the least ability to negotiate with the big banks and the card companies, so we end up with the worst contracts.
“Those who say they want to delay and study this issue, are really only paving the way for these much-needed swipe fee limits to die a quiet death. Every month of delay on the new swipe fee rules is another $1.3 billion bailout to the banks – delaying 15 months translates into another $15-20 billion gift to the banks, paid for off the backs of small business owners like me.”
Rita Moran, owner of Apple Valley Books in Winthrop, ME:
“Swipe fees are uneven, unfair and it’s absurd! This issue pits one business against another and the customers are caught in the middle. Every day I have customers come in, hand me their debit card and say they want to use it as a credit card because the banks told them to. This is divisive. Beyond the dollars and cents issue, this is a community issue.”
Senator Dick Durbin, Assistant Senate Majority Leader:
“The swipe fee issue is a very important issue for small businesses across America. These are tough times. I’ve heard so many speeches on the floor of the Senate – by both political parties – about how we need to stand behind small businesses because they are the job creators of America. Moving the new swipe fee rules forward is a key opportunity to do that.
“Last year, we got a bipartisan vote of 47 Democrats and 17 Republicans to set the Federal Reserve on the path to establishing reasonable interchange fees. Swipe fees account for $1.3 billion each month, the lion’s share of that going to the biggest banks on Wall Street. We want to end the price fixing by the card companies, end this rip-off of consumers and small businesses by making sure these fees are reasonable.
“The next two weeks are a critical moment for this issue as we wait for the Federal Reserve to announce the rule in the first part of June. We’ll get to look at the rule, dispel rumors about what the rule will do, and then we can move forward from there to implement the rule by the July 21st deadline and ensure fair treatment for all of our small businesses.
“I encourage small business owners in every state to be in touch with your Members of Congress and let them know that this is a critical issue for the growth and expansion of small businesses across America.”
MSA and the Maine Small Business Coalition co-hosted a press call on May 17 with small business owners from Maine, Oregon, Montana, and Illinois about health care. The business owners discussed the status of health care implementation in their states and recounted the role of health insurance companies in blocking and undermining new benefits for small businesses.
“Since the insurance industry lost the battle on health care reform at the national level, they’ve been turning their attention to states. They put their lobbyists to work here in Maine and almost overnight they’ve gutted key consumer protections in our insurance laws,” said John Costin, owner of Veneer Services Unlimited in Kennebunk, Maine and a leader with the Maine Small Business Coalition.
“Anthem and the other insurance companies have taken the money small business owners like me pay in premiums and used it to completely subvert our state’s consumer protections in insurance law,” Costin said. Maine Bureau of Insurance Superintendent Mila Kofman resigned yesterday due to fundamental philosophical differences with Maine Governor Paul LePage over LD1333, the state legislation passed last week that guts consumer protections and imposes a new tax on policy-holders.
“There are clear winners and losers in the law just passed here in Maine,” said Nate Libby, director of the Maine Small Business Coalition. “The winners are insurance giants like Anthem and WellPoint. The losers are small business owners and their employees, especially people with health conditions, people aging up beyond 48, and rural Mainers. Given this turn of events with LD1333 ramrodded through our legislature with the backing of the insurance companies, small business owners in our network want to know how many of our premium dollars Anthem and WellPoint are using to lobby against our best interests.”
Jim Houser, owner of Hawthorne Auto Clinic in Portland, Oregon and co-chair of MSA-Oregon, has served on Oregon’s Consumer Advisory Group for development of the health insurance exchange. “We came up with strong recommendations for our insurance exchange, including giving it the ability to negotiate for rates and services, and protecting its governance from conflicts of interest,” said Houser. “During the meetings we had to develop our proposal, no one from the insurance industry came before us to voice any concerns or ask for modifications.”
“Then, when our proposal was delivered to the legislature, the insurance lobbyists swarmed key legislators to water down the bill,” Houser continued. “They got what they wanted – the bill that passed our State Senate prohibits the exchange from negotiating on our behalf, and it gives insurance executives two seats on the exchange board. Putting the exchange in a straitjacket and subjecting it to a clear conflict of interest in governance is not good for small businesses.”
Brianne Harrington is the owner of The Painted Pot, a small business in Helena, Montana and a leader with the Montana Small Business Alliance. “I just got a call from my insurance company. Despite the fact that we have a high-deductible plan – $5,000 per person and $10,000 for our family – and despite the fact that it pays only half of costs beyond that, we’re still getting hit with an increase of more than 50 percent. That’s why we were holding out to get rate review passed in the Montana legislature. But our big insurers didn’t want that and they got the bill killed, so now there are no protections whatsoever on how much my insurance company can raise my rates.”
Harrington added, “Speaking of the secret money tunnel between the insurance industry and the U.S. Chamber of Commerce, we actually dropped our membership in the Montana State Chamber a couple years ago because we saw that our dues were being funneled to lobby for big business interests, not small businesses. The insurance companies don’t have the best interests of small business owners like me at heart. They just want to take my money and lobby against me.”
Commentary: Why Do Small Businesses Support E.O. on Contractor Political Spending? Because "Deniability" is Not a Small Business Value
That’s why it’s encouraging to hear news of a potential executive order from the Obama Administration that would require government contractors to disclose their political spending if they surpass a $5,000 threshold. It’s a small step, to be sure, compared to the big problems of covert political spending and a broken campaign finance system. But it’s a step in the right direction (see this May 4 post from OMB Watch for more background on the potential order).
Not everyone in the business community seems to feel this way, though. In an interview for an April 26 New York Times story, R. Bruce Josten, top lobbyist for the U.S. Chamber of Commerce, said the Chamber “is not going to tolerate” the proposed transparency order.
Transparency is a Main Street value. Small business owners take pride in being straight-shooting, “what you see is what you get” business people. So why is the U.S. Chamber out guns blazing against this proposal?
You don’t have to dig far to find out. It turns out over 50 of the companies represented on the U.S. Chamber’s board of directors are government contractors, and to the tune of a whopping $44 billion in 2010, according to an analysis compiled by U.S. Chamber Watch.
So, that means almost half of the companies represented on the U.S. Chamber's board – including the likes of Lockheed Martin, Pfizer, Verizon, WellPoint, JPMorgan Chase, and even the U.S. Chamber itself – would have to disclose both their direct and indirect political spending. The indirect part is key, because it means contributions given by companies to the U.S. Chamber for political purposes – like the health insurance industry’s $86.2 million bankrolling of the Chamber’s anti-health reform activities in 2009 – would be part of required disclosures.
To understand why this is just so “intolerable” an idea to the Chamber, it helps to understand the organization’s business model. James Verini wrote about this in the Washington Monthly’s July/August 2010 issue, quoting an interview with U.S. Chamber CEO Tom Donohue:
“I asked Donohue what, exactly, the Chamber does. ‘Two fundamental things,’ he replied. ‘We’re advocates. Sure we do studies, sure we do events, sure we do meetings, sure we have all kinds of stuff, but we’re advocates.’ And then he surprised me again with his candor. ‘The second thing we do is really more interesting,’ he said. ‘We’re the reinsurance industry for individual industry associations and state chambers of commerce and people of that nature.’”What did Donohue mean by “reinsurance?” Verini elaborates later in his article:
“In other words, a large part of what the Chamber sells is political cover. For multibillion-dollar insurers, drug makers, and medical device manufacturers who are too smart and image conscious to make public attacks of their own, the Chamber of Commerce is a friend who will do the dirty work. ‘I want to give them all the deniability they need,’ says Donohue.”“All the deniability they need.” That’s why the Chamber is so up in arms about the proposed executive order – because it will take away that “deniability” by laying bare which corporations are laundering their political contributions through third parties, undermining one of the core benefits the Chamber offers to its high-roller members.
Deniability is not a small business value. In fact, it’s the polar opposite of one - the value of doing what you say and saying what you do. Small business owners take responsibility for their actions. Big corporations should, too, including their political spending, and that’s why the Obama Administration should forge ahead with this executive order. It would be a victory for transparency and for a more level playing field for America’s small businesses.
On April 20, the Montana Small Business Alliance hosted a business roundtable on clean energy and clean air issues with U.S. Senator Jon Tester. Small business owners from Billings and Eastern Montana communities got face to face and shared their perspectives on clean air and energy issues with Senator Tester, who serves on both the Energy & Water Development and Interior, Environment, & Related Agencies subcommittees of the Senate Appropriations Committee.
The business owners who joined the roundtable represented a true cross-section of Montana. They included a farmer/rancher, an architect, a restaurant owner, and a carpenter. Though they come from many different sectors, these business leaders were united by their interest in protecting Montana’s quality of life to support healthy communities and vibrant local economies.
Montana has seen many battles waged on the premise that economic growth can only come at the expense of the state’s natural beauty and environment. The business owners at the MSBA roundtable turned this premise on its head, making a compelling case that long-term economic growth goes hand in hand with preserving the state’s natural splendor.
Senator Tester and the roundtable participants discussed the potential for an expansion of jobs related to clean air, clean water and energy efficiency. The business leaders cited examples of maximizing energy efficiency at their businesses as a money-saving mechanism. The conversation also touched on the health care costs related to pollution.
"Nationally, we are spending tens of billions of dollars on health care related costs of using carbon based fuels," said Ben Reed, owner of Winpower West. "We want our children and grandchildren to enjoy the fruits of our labor, not have to pay the costs for them."
“Hearing from small business owners who are strengthening Montana’s economy and creating jobs is one of the most important things I do," Tester said. "Today’s roundtable was full of good ideas about working together to move our economy forward while making responsible decisions about Montana’s land, air and water.”
On March 30th, Main Street Alliance leader Rick Poore made the trek to Washington, DC from his business in Lincoln, Nebraska to testify at a hearing of the House Energy & Commerce Committee's Subcommittee on Health.
Rick discussed his support for the new health law. He told his story of steep annual rate increases - several times in excess of 30 percent - in the years before the passage of the health law. And he recounted how his current insurer does rating differently, spreading risk and costs more effectively across younger and older workers, and how he sees that as a microcosm of how the new health insurance exchanges will help small businesses by expanding risk pooling and spreading risk more effectively.
Rick's opening remarks from the hearing are pasted below:
Chairman Pitts, Ranking Member Pallone, and members of the Health Subcommittee,
Thank you for the invitation to testify today. My name is Rick Poore, and I own DesignWear, a screen printing business in Lincoln, Nebraska. I’m also a member of the Main Street Alliance small business network.
I’ve been a small business owner for 17 years. I started with 3 employees, and we’ve grown to employ 29 people.
I offer health insurance to my employees. It makes sense for morale and retention. But our rates have gone up every year – several times over 30 percent.
At the same time, our benefits were whittled away, in an effort to keep things affordable, until we had little more than a fig leaf left.
Two years ago, I switched to a new insurer. They do rating differently, spreading risk and costs more evenly, and it’s markedly cheaper for me overall. I see this as a microcosm of the new health insurance exchanges coming in 2014.
The country counts on small businesses to create jobs, but if you want to talk about a job-killer, look no further than runaway health insurance costs. Small businesses’ ability to create jobs has been seriously undermined by insurance costs more than doubling in 10 years.
We saw years of steep increases, with no tools to do anything about it. Without bargaining power, I had better odds from a midway carney than I did from my insurance company.
The Affordable Care Act is finally changing that, for the better.
The argument that the health law will cost our economy jobs ignores reality. It ignores the lessons of the last decade, where it was the lack of action by Congress to curb skyrocketing costs that left small businesses in the lurch.
The real threat to job creation is the threat of repealing the law and going back to a system that stacks the deck against us.
On the employer responsibility requirement, we’ve got to remember two facts. First, over 95 percent of our nation’s businesses have less than 50 workers and won’t be impacted. Second, 96 percent of businesses with more than 50 workers already offer coverage.
If some larger businesses complain that paying for health coverage will harm their ability to create jobs, remember that when they don’t pay, the rest of us pay their way for them, and that hurts our ability to create jobs. This is anti-competitive.
Imagine if my competition stopped paying wages and I was held responsible for making their payroll. It may sound crazy, but that’s effectively what we’re doing with cost shifting in health care.
Recent data from insurers in Nebraska, Kansas City, and national companies like UnitedHealth Group and Coventry show encouraging increases in small business coverage. ,
From the tax credits to stronger rate review and the value for premiums requirement, the health law is already helping small businesses offer coverage, save money, and plow those savings back into job creation. We’ll get even more help in 2014 when the insurance exchanges open.
I’m looking forward to broader risk pooling and bargaining power in a Nebraska insurance exchange.
There are 40,000 firms in Nebraska with less than 50 employees that could buy in the exchange, employing 230,000 people. Talk about increasing my bargaining power.
I know insurance lobbyists are trying to blame recent rate increases on the new law. But insurers find an excuse to raise rates every year. If they’re raising them again, it’s in spite of the law, not because of it.
Even insurance executives admit this: an executive in Massachusetts said recently that only one percentage point of his company’s increases this year was due to the new law.
Small business people are problem solvers. We wake up every day looking for a better way to do business. We take whatever pitch is thrown at us and do something with it.
Problem solving is what the American people send Representatives to Washington to do.
Here’s the thing about problem solving: most solutions aren’t perfect out of the box. But that’s no reason to scrap them. We make a start in the right direction and correct the course as needed.
Our country and our economy can’t afford to go back to a health system that stacks the deck against small businesses. We’ve got to move forward.
The other day I had to ask my wife when we actually started DesignWear – as a habit, I believe most entrepreneurs look mainly forward and rarely back. That’s what I’m asking you to do.
By moving forward, you can level the playing field for small businesses, allowing us to focus on creating jobs and building our local economies.
Every day until the end of the Congressional recess on September 8, MSA is featuring a real-life story of a small business owner impacted by the health care crisis here on our COUNTDOWN page. It’s our SMALL BUSINESS COUNTDOWN TO HEALTH CARE, and it’s part of our national STAND WITH SMALL BUSINESS initiative. MSA small business owners are calling on Members of Congress to stand with small business, not the insurance industry, and pass real health care reform when they head back to Washington DC on September 8.
DATE: SEPTEMBER 1
COUNTDOWN METER: DAY 7 - ONE WEEK TO END OF RECESS
STATE SPOTLIGHT: ILLINOIS
Radha Jaya Raghavan
Systems Integration Consultant
I’m a certified IT professional, and I recently started my own consulting business. As a self-employed person, my insurance premium has skyrocketed in recent years. Since November 2007, it’s gone up five times, with an overall premium spike of 55 percent to 60 percent.
The premium hikes all started when my doctor sent me for a test because of family medical history. I was then hit with a higher premium and an out-of-pocket expense to cover the cost of the test. Every time I called, they had a different story about what was covered and what was not. Eventually, I paid a lot of money out-of-pocket, because I was afraid that my credit history would be destroyed while they delayed payment.
My fear is that my insurance rates will keep rising, and I’m very unsure whether I’ll be able to maintain coverage. I’m afraid to go to my doctor for a check-up or get any routine exams done. I’m worried that I'd be giving the insurance company an opportunity to increase my premium yet again.
We need to have care and treatment that is easy to obtain, without having to mortgage one’s house or file for bankruptcy. The system should encourage entrepreneurs, not penalize them with confusion and higher insurance costs. That’s what health care reform means to me.