The Business Press: Swipe-fee reform under fire

LEGISLATION: Financial institutions cautious about fed oversight and wary of possible impact on their revenue. (Note: The Senate passed the Wall Street Reform Bill on Thursday, sending the package of reforms to President Obama for his signature.)

11:31 AM PDT on Wednesday, July 14, 2010

Contributing Writer

The financial reform package set to be voted on in the U.S. Senate includes for the first time federal oversight of debit-card and prepaid credit card interchange fees, which are charged on each transaction by banks for Visa Inc. and MasterCard Inc.

Also known as swipe-fees, the compromise version of the Restoring American Financial Stability Act of 2010 includes an amendment that requires debit-card issuers to set fees at levels that reflect the actual cost of processing transactions and give merchants new flexibility to reduce their costs.

The legislation only applies to debit cards and prepaid credit cards, not traditional credit cards. According to the amendment, the Federal Reserve would set regulations resulting in “reasonable and proportional” swipe fees for debit cards.

The Fed would be required to take into account banks’ actual costs for processing the transactions and the fact that paper checks drawn on the same accounts are paid at face value. The amendment would also bar the card industry from interfering with merchants who offer a discount or other benefit to customers who pay by cash, check or debit card rather than credit cards, and would allow merchants to set minimum purchase amounts of up to $10 for credit cards.

Known as the Durbin amendment, after its sponsor Senate Majority Whip Richard Durbin, D-Ill., it would also exempt financial institutions with less than $10 billion in assets.

But the amendment has been met with caution by several Inland banking and credit union executives interviewed by The Business Press.

“The financial regulation bill that includes language about interchange fees …. is too new for us to comment on specifically, but California Bank & Trust does expect that the impact to our financial institution to be minimal,” said Steven Borg, senior vice president and corporate marketing director at California Bank & Trust.

California Bank & Trust, a subsidiary of Salt Lake City-based Zions Bancorporation, operates 11 branches in Riverside and San Bernardino counties. At the end of the first quarter of 2010, the bank reported assets of $11.2 billion, making them eligible for the new regulation.

In an e-mail, Borg said interchange fees were not a sizable part of the bank’s overall income. According to the bank’s earnings statement, it earned $124.7 million in the first quarter before provisions for loan losses, which resulted in income of $9.9 million for the last quarter. The company didn’t break out its income from interchange fees.

“We will be studying the bill and all new financial regulations that impact our bank in the future,” he said.

Mark Hawkins, president and chief executive officer of Riverside-based Altura Credit Union, questioned whether the new rule would really be able to differentiate between institutions with more or less than $10 billion in assets. He questioned if the measure wasn’t just “a dig at the big banks,” and would just “benefit the giant retailers.”

“Smaller (financial institutions) will be hit with lower interchange revenue than we are accustomed to,” Hawkins said. “Imagine how that will affect us. Anything in this climate is significant.”

Altura Credit Union, with 14 branches, 111,893 members and $883.8 million in assets, expected to earn a little over $5 million in interchange fees this year.

“We’ll make about $70 million in total revenue, so that’s about 14 percent of our total that’s at risk,” he said. “Why are we even doing this? I don’t have an answer. This system has worked well for 15 years. Prices haven’t changed in that time.”

Interchange is a fee that a merchant pays when a consumer uses a credit or debit card to make a purchase. The fee partially reimburses the issuing bank for the significant costs and risks of issuing cards, including infrastructure expenses, fraud risk, and the real risk of non-payment.

The fees charged to retailers, average 1 to 2 percent of the total transaction amount, according to the American Bankers Association.

Overall swipe fees charged to retailers and other business by Visa and MasterCard banks totaled $48 billion in 2008 and resulted in higher prices estimated by National Retail Federation at $427 for the average household


The Business Press: Brithinee Electric gets powerful recognition

11:28 AM PDT on Wednesday, July 14, 2010

Contributing Writer

Brithinee Electric Inc., the Colton family-owned business known for the manufacturing and repair of generators and control panel systems, has been named Small Business of the Year by Assemblywoman Wilmer Amina Carter, D-Rialto, for businesses within the 62nd District.

The privately held company, which was founded in 1963 by Wallace and Zora Brithinee and their identical twin sons, Donald and Wallace, is one of the largest sellers of NEMA Premium Efficiency industrial electric motors. The motors are the highest electrical efficiency motors available on the market today, the company said.

“We are the only company in the local area that services motors and controls for industrial electric equipment, along with manufacturing controls for industrial electric equipment,” said co-owner Donald Brithinee.

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Sal Arrcola of DAP Electric works on Brithinee Electric’s $4 million expansion.

Brithinee said he and his brother were honored by the recognition, especially in being described as a green company that repairs motors that power wind turbines, solar projects and geo-thermal plants. He said being able to repair motors that preserve the energy efficiencies of various energy equipment had become a “key component,” accounting for about a fourth of their business.

The company, which has a workforce of 60, has also improved energy efficiency and greatly lowered emissions at their facility, he said.

Carter credited Brithinee Electric for making an environmental difference and setting the standards for the motor repair industry. Her district includes the cities of Colton and Rialto, unincorporated areas Muscoy and Bloomington and parts of San Bernardino and Fontana.

“Brithinee is a green technology company and the owners are making huge investments in the environment to cut costs, comply with customer demands, and remain competitive,” she said.

That investment includes an additional $3 million spent this year to construct a 20,000-square-foot building to handle repairs of larger motors and generators used by wind turbines. Brithinee said the company has also spent $900,000 to purchase new, larger equipment for the facility, which is expected to be completed in September.

Based on 3.5 acres at 620 S. Rancho Ave., the company’s original 18,500-square-foot repair service building was constructed in 1973. The firm’s third building, which is 14,500 square feet, houses its sales offices, he said.

“Our original building served as a single facility used to manufacture and repair motors,” Brithinee said. “We also had to purchase new, larger equipment needed to handle repairs, because we couldn’t do it with the equipment we had been using.”

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Photo By Dan Elliott / Contributing Photographer
Ruben Blumen works on rewinding an electrical motor, which is a specialty of Brithinee Electric in Colton.

The expansion and purchase of additional equipment was financed using internal funds and a small bank loan, he said. When construction is complete the two buildings would merge into a single manufacturing and repair facility.

“It doubles our capacity and allows us to accommodate larger repair projects in the renewable energy sector, specifically wind turbines,” he said.

While the Brithinee brothers have guided their company through the recession, they have not been immune to its effects.

Brithinee said the company has lost clients because of the recession, but the firm has still managed to grow by providing repair services to alternative energy companies.

Born and raised in Fontana, Donald and Wallace Brithinee graduated Fontana High School and received their doctorates in mathematics in 1971 from UCR by age 22. Their success in both academics and business has led the brothers to establish the Britinee Scholarship for returning UCR Alumni Scholars.

The brothers have donated more than $40,000 to the scholarship fund since it was established in 1987. Brithinee said they provide four scholarships annually to returning sophomores, juniors and seniors equal to what is provided by the Alumni Scholars to students of the college’s Engineering School.

“If we are an example of anything,” Donald Brithinee said. “It’s the opportunities that public education in this country can provide.”

Other small business honored this year by Carter include: Bobby Ray’s BBQ and Bob’s Art and Frame Company, both of San Bernardino; P&G Auto Parts of Rialto; A&R Tech of Fontana; and MAS Auto of Bloomington and Fontana.