Congress Should Protect Debit Card Users

Merchants are the biggest beneficiaries of the current electronic payment network.  When payment is made by plastic card, merchants are guaranteed payment, they receive payment immediately and they bear no risk of fraud loss.  Perhaps the best evidence of the value of the electronic payment network is the fact some retailers don’t even accept checks anymore.  Despite the many benefits merchants receive, they some “big box” retailers are trying to shift the cost of the payment network ultimately onto consumers.

In December, the government proposed a price cap of 12 cents per transaction on debit card interchange.  This government-set rate represents a 75 to 80 percent reduction in a financial institution’s resource to pay for a world-class payment system.  The revenue required to support the payment system infrastructure must come from somewhere—and if Congress doesn’t take action, consumers will end up paying the freight with new annual fees for debit cards and/or checking accounts.

There is a final chance to re-evaluate this monumental shift in the payment system network and its ultimate impact on consumers before the Fed’s rules go into effect on July 21.  Important legislation offered by Senator John Tester (S. 575) will delay implementation of the Fed’s rule and allow careful study of the interchange issue.

The interchange provision in Dodd-Frank was the result of an 11th hour floor amendment by Senator Durbin which only passed because it “exempted” financial institutions under $10 billion in assets.  This exemption is not practical and has been called into question by Federal Reserve Chairman Bernanke. Senator Tester’s bill simply stops the rule, studies its complex consequences and requires the Fed to start over.