Without debate or hearings, the U.S. Senate added an amendment to SB 3217 – the financial reform bill dubbed “Restoring American Financial Stability Act” – that alters the interchange fees merchants pay when consumers use debit cards. This provision will have negative unintended consequences for consumers using debit cards.
Merchants receive tremendous benefits when they choose to accept debit as a form of
payment. First, they attract more business because debit cards are more convenient and are preferred by consumers. Second, merchants are guaranteed payment when the transaction is approved, eliminating the risk that a check might not clear. Interchange fees are charged to merchants to process the transaction, and they offset the risks associated with electronic payments. If a debit transaction is approved at the point-of-sale, any risk associated with nonpayment by the consumer is borne by the financial institution that issued the debit card – not the merchant.
Before debit cards, people used checks. For a small merchant, a bad check could be a serious threat to its ability to do business because of the cost of collection and the loss of income. The interchange fee merchants pay helps offset the costs such as fraud, merchant data-security breaches and the reissuance of cards, to name a few. Financial institutions that issue debit cards, including credit unions, assume expenses and risks for electronic payments to offer the convenience of debit cards to their customers.
As it is written, the interchange amendment would allow the Federal Reserve to set a debit interchange rate based solely on the cost of the transaction, without consideration of the total direct and indirect costs of offering debit cards to consumers. The merchants do not share in all the expenses associated with electronic payments and do not assume any of the risk but continue to benefit from prompt payment and additional business from the convenience of accepting cards. Who will cover the merchants’ share of the expenses? You, the consumer, will bear the cost. You may see fewer financial institutions offering debit cards, less access to a convenient payment option, monthly fees to have a debit card or per-use charges when using your debit card.
Credit unions understand the costs associated with issuing and accepting debit cards and welcome an open discussion about interchange fees and their impact on consumers, financial institutions, credit card processors and retailers. However, this amendment was added to the regulatory reform bill without any public debate or a study of its impact.
An effort to target the Wall Street banks responsible for the financial crisis will hurt consumers if interchange is included in regulatory reform. Interchange was not part of this problem and does not belong in this bill.
Rosie Holub is president and CEO of St. Louis-based Missouri Credit Union Association, a trade association representing the state’s 144 credit unions and 1.35 million members. She can be reached at rholub@mcua.org.[[In-content Ad]]
