Background: Last month, we reported that the Durbin Interchange amendment, which seeks to regulate debit card swipe fees and allow merchants to add on credit card surcharges at the counter, was attached to the Financial Reform Bill. We also discussed why this might not be such a good idea, given that Australian consumers took it in the chin when this happened down under in 2003.
What’s New: Senator Durbin announced today that key members of the House have reached a compromise regarding the Senate’s proposed interchange amendment. While Durbin gives out a laundry list of differences between the old amendment and the revised version, there are very few changes that will actually benefit consumers.
Looking through the list of changes, it strikes us that there seems to be implicit acceptance that the amendment is even harmful to consumers.
For instance, government-issued cards such as welfare/food stamp/unemployment benefits, as well as prepaid cards that are popular among the poor and un-banked population, were dropped from the scope of interchange regulation. Why? We’d argue that this is an implicit acknowledgment that the bill is mostly bad for consumers, and a reactive attempt to make the regulation more supportive.
Nebraska’s State Treasurer, Osborn, made the same point in a letter to Congress, where he concluded that the bill will hurt taxpayers, since the current interchange fee structure allows card companies to provide debit card services for free.
Changes to the bill that might affect you and me:
Merchants will be “capped” in terms of how high they can set minimum credit card payments. This cap will initially be $10, but we really don’t think this will have much impact because minimum charges are already fairly prevalent at small merchants, despite being against the rules. Additionally, we think large chain stores are unlikely to start imposing credit card minimums given how low their interchange rates are relative to small merchants. Realistically, small merchants looking to cut their swipe fee bills will get splashed with a dose of Econ 101 reality – competition ends up determining the prices you can charge, not an interchange law.
The new compromise excludes government-administered cards and reloadable prepaid cards from interchange regulation. As mentioned above, this was the result of complaints from states and advocates of the poor and un-banked, about how interchange regulation will result in higher fees for states and prepaid debit card users.
Changes that won’t affect you and me, but are still interesting:
The Federal Reserve will be allowed to factor “fraud prevention costs” into estimates of what is “fair and reasonable” for interchange rates. This is a departure from previous language that only allowed adjustments for incremental costs, and will likely allow for higher regulated debit card interchange rates.
The Federal Reserve will not attempt to regulate the fees Visa and MasterCard charge banks, only the fees that credit card issuers charge merchants. This was a relief to shareholders of Visa (+5%) and MasterCard (+4%) today, but really has little impact on cardholders.
Merchants will not be able to charge different prices depending on what type of credit or debit card you have. But they can still give discounts for cash and checks.
The Fed gets to wear the pants. In the Senate version of the amendment, the Federal Reserve would hand regulatory control over to the Consumer Financial Protection Agency / Bureau after a period of time, but this is no longer the case. Apparently this excites stock analysts because the it provides more “visibility”, but it really has no foreseeable impact on consumers.