No to Debit-Card-Fee Price Fixing
The benefits to consumers are a mirage.


Katrina Trinko

Lower prices! That was the promise of the Debit Interchange Fee Amendment, which gave the Federal Reserve the power to police the interchange fees in debit-card transactions and to regulate rate levels in a way that would make them “reasonable and proportional to the processing costs incurred.” But, with the Federal Reserve set to discuss the level of those rates in a meeting today, the amendment’s impact isn’t looking so rosy anymore.

Sen. Dick Durbin (D., Ill.), who sponsored the amendment, thought debit-card interchange fees were too high, citing a study by the National Retail Federation estimating that each American family had “paid” — because prices were higher due to interchange fees — $427 extra in 2008. (Interchange fees are the percentage of the purchase, usually ranging from 1 to 3 percent, that a merchant pays when a consumer pays with a credit or debit card.) If interchange fees were set to a more reasonable level, surely retailers would lower prices and consumers would win.

Predictably, retailers enthusiastically embraced the amendment and indicated that they would pass on savings to customers. Touting the importance of the measure, Scott Mason, vice president of government affairs for Lowe’s, told the Wall Street Journal that “every dollar we pay the credit-card companies is a dollar we can’t pass on to consumers or use to hire employees or build more stores,” adding that he was talking about “hundreds of millions of dollars.” Home Depot claimed that the benefits of the amendment would “likely . . . include lower prices.”

With so many Americans penny-pinching to scrape through this economic downturn, the argument was appealing. Unsurprisingly, the amendment, which was added to the financial-reform bill, easily passed the Senate in May with bipartisan support, most lawmakers ignoring the protests of the undoubtedly greedy card companies and banks.

There’s just one catch: It now looks like retail prices won’t be going down. What likely will be changing are the bank fees (becoming higher) and the services offered (becoming fewer). “Since passage of the [Durbin] Amendment, analyst reporters for retailers likely to be affected by the provision make no mention of any benefit for consumers,” wrote a bipartisan group of 13 senators in a letter to Federal Reserve chairman Ben Bernanke sent last Friday. “Related to this, many predict that consumers will be faced with additional bank fees as the rule is implemented.”