From: Concord Monitor
By Jeff Savage / For the Monitor
April 12, 2011
Americans have great choices for making payments at our retail checkout lines. We used to be limited to simply cash, credit or checks. But more and more of us have switched to debit cards, recognizing their convenience. Unfortunately, last year Washington lawmakers created a problem which will harm the debit card system and potentially every one of us who uses debit cards.
When Congress passed the Dodd-Frank financial reform bill, it included a last-minute provision called the “Durbin Amendment” which placed the government in the role of fixing prices for debit card use. Right now when a debit card is used, an interchange processing fee is paid by the retailer. This supports the debit card network that allows these transactions to take place and helps cover the cost of fraud loss. When their customers use debit cards, retailers are protected from fraud loss costs – which is much better for them than accepting the risks of bad checks and counterfeit cash.
So do consumers gain with this legislation? No, we do not. In fact, quite the opposite. The price caps proposed by the Federal Reserve interchange rule are not going to cover the costs needed to maintain the debit card system and the associated fraud risks. The unfortunate result of this will be added costs passed on to consumers for using debit cards and other core banking services. It may also result in fewer consumer transactions being approved, more limits on the payment amounts permitted, and losses of other benefits, such as free checking.
Even federal regulators are challenging the benefit of the interchange rule. The Federal Deposit Insurance Corp. recently warned that consumers who are of low and moderate income may feel the hardest impact of this legislation. Federal Reserve Chairman Ben Bernanke recently notified Congress that the Fed needed more time to prepare. Without congressional action, the Federal Reserve’s interchange fee rule will take effect July 21.
This will turn a market-based system, which is now functioning well and as it was intended, into a government-controlled system that will not function well. Presently the costs are paid by those who benefit the most from the system. With the proposed change, the costs are shifted away from them and will be placed more directly on consumers.
There is important legislation being considered that will delay implementation and allow careful assessment of the costs of continuing to operate this system and improve it for the future. In doing so, the prices eventually set by the Fed will more reflect their real value. If prices need to be set, this seems the only reasonable way to do it.
Call on the New Hampshire congressional delegation to support this legislation.
The bills are Senate Bill 575, the Debit Interchange Fee Study Act of 2011; and House Bill 1081, the Consumers Payment System Protection Act. The price controls set in the “Durbin Amendment” must only take place when they consider all significant impacts.
(Jeff Savage is chairman of the New Hampshire Bankers Association.)
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