BankNews

Interchange Fees, a Haunting Refrain

By: Bill Poquette

While Congressional committees and banking industry trade groups have been vigorously debating broad regulatory reform and the proposed Consumer Financial Protection Agency, the contentious issue of interchange fees hasn’t gone away. Indeed, arguments from bankers and retailers were heard Oct. 8 in the House Financial Services Committee on H.R. 2382, the Credit Card Interchange Fees Act of 2009.

The Independent Community Bankers of America and the American Bankers Association, their lobbyists’ plates already full with other far-reaching reform legislation, nevertheless stated their industry’s case forcefully. The ICBA called the bill misguided and argued it would lead to fewer choices and higher costs for consumers and small merchants. Similarly, the ABA suggested the bill would undercut a system that is efficient, accessible, reliable, global and based on a pricing system that benefits consumers, businesses and the broader economy.

Representing the ICBA, Louisiana State Sen. Ann Duplessis, also senior vice president of Liberty Bank and Trust in New Orleans, pointed out that consumers are able to obtain debit and credit card products through their local community banks in large part thanks to an interchange system that provides equity, fairness and competition for everyone — consumers, merchants and card issuers.

“Interchange revenue allows community banks to compete on equal footing with the largest financial institutions by offering these services, bundled with the long-term, relationship-building services unique to community banks,” Duplessis continued. “H.R. 2382 would allow large merchants to further disadvantage their smaller competitors by undoing the payments system rules that currently benefit smaller businesses,” she added. “It would also begin the process of shifting a retailer’s cost of accepting electronic payments onto consumers by eliminating consumer protections inherent in the current payment card systems.”

The ABA, in its statement, told the committee that payment cards play a vital role in the nation’s economy, providing merchants with broad access to the buying public, providing funding for small businesses and providing billions of dollars in annual payment-processing savings for retail businesses of all sizes. “Merchants pay to accept card payments because doing so enhances their business. The current payments system reflects a business arrangement among business partners that provides benefit to all involved,” the association said.

The ABA added that the bill under consideration would end up increasing costs and reducing benefits for consumers, calling attention to a provision that would either end rewards programs or result in higher annual fees and noting that another provision that allows merchants to impose minimum and maximum amounts for card purchases would eliminate consumer choice, add to consumer inconvenience and place consumers at risk of harm.

With all the extraordinary pressures already facing community banks, restricting their flexibility to extend credit and squeezing their earnings, limiting the income represented by interchange fees would be more cruel and unusual punishment. And in times that cry for stimulative economic measures, saddling consumers with added costs for groceries and gasoline sounds like poor public policy.

Bill Poquette is editor-in-chief of BankNews.

Copyright © November 2009 BankNews Publications

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