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When Good Intentions Backfire



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Yesterday, I wrote about the law giving the Federal Reserve the power to police debit card interchange fees (which are the fees a merchant pays every time someone pays for a purchase with a debit card, usually about 1 to 2 percent of the total). The idea behind the legislation was that the banking industry had these fees set too high. If the Fed forced them to lower the fees, retailers would save — and give their customers lower prices.

Well, instead, it now looks like retailers will just pocket the extra cash and not charge lower prices, while banks will try to recoup some or all of their losses by charging consumers new or higher fees. Not exactly what the lawmakers intended to happen!

But it gets worse: the Fed has now announced they want to cap interchange fees at 12 cents per transaction — an amount that the Fed admits is “more than 70 percent lower than the 2009 average.” That’s a lot higher than the worse-case scenario of 50 percent that analysts had predicted — and means that consumers can expect to get slapped with a lot of banking fees.

The Fed will be accepting comments on the new rule through February 22. They will make the final decision in April, and implement the new rates in July.



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