News for the Hospitality Executive |
Dodd-Frank Act Presents Hotels with Decisions on Credit and Debit Card Charges |
By
Jim
Butler and the Global Hospitality
Group® Hotel Lawyers | Authors of www.HotelLawBlog.com August 28, 2012 Hotel Lawyer on card processing fees. The financial reforms following in the wake
of the banking
mess brought new regulations on the use and charges for credit and
debit cards.
There may be some benefits here for hoteliers, but there certainly are
some
decisions to make. In addition to all the work he does on hotel
management
agreements and hotel franchise agreements, my partner Robert Braun
represents a
number of merchant card processors, banks and merchants in structuring
credit
card processing arrangements, both within the United States and
internationally. Today, he shares some of his insights on the
recent legal
changes in laws on card processing and the potential impact on the
hotel
industry. Credit Card
Fees and the Hospitality Industry Dodd-Frank affects hotels and other
merchants The Dodd-Frank Wall Street Reform and
Consumer Protection
Act of 2010 certainly sparked fierce debate about government
regulation,
consumer choice, innovation and entrepreneurship. The Durbin Amendment,
a
last-minute addition to the Dodd-Frank Act, drastically lowers swipe
fees - the
fee charged to merchants every time a customer pays with plastic - on
debit
cards issued by big banks, cutting into the banks' revenue while,
presumably,
lowering costs for merchants and therefore consumers. The reduction in
fees was
significant: the Amendment reduced fees to 24 cents from a previous
average of
43 cents, according to a Federal Reserve Board report. The Durbin Amendment became effective nearly
a year ago, on
October 1, 2011, and the ramifications are becoming apparent. Banks are
offering fewer free or low priced services to compensate for lower
revenues,
and since prepaid debit cards aren't covered by Durbin, those cards are
becoming increasingly popular. Hotels, as merchants, are significantly
impacted
by the Durbin Amendment, and are continuing to react. Lower swipe charges Senator Durbin, speaking to a group of
reporters in
Nashville before the effective date of the Amendment, explained that
the new
law would be good for merchants: "The retailer will be more profitable.
That's what's behind this." Durbin said that the amendment was designed
to
protect retailers such as gas stations, for instance, who often lose a
lot of
their profit to debit cards. Durbin added that retailers were likely to
pass on
their profits to their customers, at least those retailers who are
competitively trying to entice you into their stores. So the law was designed to protect not only
consumers, since
lower swipe charges should result in lower prices for products and
services,
but also business owners, especially those who depend on numerous small
transactions to survive. New law lets merchants recover processing
fees Because the Durbin Amendment allows
merchants, including
those in the hospitality industry, to recoup at least some of the fees
they pay
to card processors, it should benefit the industry. This may encourage
some
hotels to rethink their prior refusal to accept debit cards because the
costs
were high, and they could not recoup those fees. That should expand the
use of
debit cards and, consequently, provide at least some additional
incremental
revenue for the industry. To charge or not to charge On the other hand, hotels face a dilemma
because consumers
are likely to object to paying a fee for something that was previously
free (or
at least seen as free, since the cost of card fees was built into the
cost of
rooms, food, beverage and services). Hotels will have to make the
decision to charge,
or not charge, card transaction fees. Hotels could benefit from the
additional
revenue, but they will add yet another line to an already complicated
checkout
bill, which could alienate some guests. Moreover, some states (like
California)
still prohibit charging a premium for use of a card, as opposed a cash
transaction. While not impossible, it may be difficult to incorporate
these
fees over large networks. Thus, in the short run, hotels may not be
able to
recoup charges. In addition, the reduction in credit card
and debit card
service fees are expected to reduce revenues to the banking industry;
banks, in
turn, are expected to recover some lost income from their customers --
both
individual and institutional. Hotels could face additional banking
costs, as
well as the possibility that some consumers may be stretched. The ultimate impact of the Durbin Amendment make take some time to determine, but there are also other payment issues that could have a significant impact on the hospitality industry. For instance, hotel owners and operators should consider how new payment systems, such as Google Wallet, a mobile payment system, impact their operations. These transactions, which are becoming more and more popular, are likely to have a longer-lasting impact and require more adaptation in operations. They add additional layers of complexity with another party, additional hardware and software, and issues on consumer security and privacy. ___________________________ Robert E. Braun is a senior member of the Global Hospitality Group® at JMBM. Mr. Braun advises hospitality clients with respect to management agreements, franchise agreements and spa agreements. Bob has also represented a number of merchant card processors, banks and merchants in structuring credit card processing arrangements, both within the United States and internationally. He also advises on business formation, financing, mergers and acquisitions, venture capital financing and joint ventures, telecommunications, software, Internet, e-commerce, data processing and outsourcing agreements for the hospitality industry. Contact him at (310) 785-5331 or [email protected]. ___________________________ This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We've done more than $60 billion of hotel transactions and have developed innovative solutions to unlock value from hotels. Who's your hotel lawyer? ___________________________
Our Perspective. We represent hotel lenders, owners and investors. We have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,300 properties all over the world. For more information, please contact Jim Butler at [email protected] or +1 (310) 201-3526. Jim Butler is a founding partner of JMBM, and Chairman of its Global Hospitality Group® and Chinese Investment Group™. Jim is one of the top hospitality attorneys in the world. GOOGLE "hotel lawyer" and you will see why. Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them. |
Contact: [email protected] 310.201.3526 |
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