Will End of ‘Swipe Fees’ be a New Beginning for Black Consumers?

Last Friday, small businesses won a significant victory when Congress announced that interchange fees associated with transactions involving debit and credit cards would be regulated by the Federal Reserve. Use of prepaid credit cards produced a $1.63 trillion dollar volume for Visa and MasterCard in 2009, and in that same year, Visa and MasterCard had a combined 36.2 billion U.S. debit and prepaid card transactions, for which they--and other major financial institutions like them--raised transaction or "swipe fees" that interfered with many merchants' profits. However, in the recommendation that will go before the full conference committee on Tuesday, there will be limits to the fees that financial and credit institutions can charge merchants for accepting credit and debit cards.

Exempt from this regulation are reloadable, prepaid credit or debit cards, which are disproportionately used by low-income people who lack access to traditional credit and financial resources. The exemption was a deal developed largely in response to support by the Congressional Black Caucus and hip hop mogul Russell Simmons, owner of the Rush Card. The impact of unregulated swipe fees on low-income consumers was central to Simmons' call for the exemption, arguing that "debit cards are what keep the under-served--including minorities, immigrants, the poor, soldiers, veterans and students--from the claws of payday lenders and check cashers.