In June 2010, the U.S. Senate passed a bill regulating the amount charged by banks for allowing a merchant to offer its’ customers the ease of using a credit or debit card to pay for their purchases, known as Interchange Fees. Once this bill is passed by the House of Representatives and signed into law by the President, it will reduce the cost to merchants for using credit and debit cards for purchases and feasibly lower the cost of the items being sold.
The Credit/Debit Card industry is generally dominated by Visa and MasterCard, the two most popular processors of credit cards. As anyone with a credit card can tell you, it is the convenience of not having to write a check,the option to pay for the purchase over time and the rewards that can be generated that makes credit cards so popular. Basically, credit card companies manage the transactions when a consumer uses a card to purchase goods and services.
These companies (Visa, MasterCard, Discover and American Express) rely on banks to issue credit/debit cards to their customers. In order to gain a market-share in the industry, credit card companies compete with each other for the bank’s business by offering higher and higher commissions for issuing a card with their services. The banks in turn, charge the merchants or businesses who offer their customers the ability to pay by credit/debit card a fee for the transaction as well. Because the consumer never ‘sees’ these fees, they have no idea that each purchase (whether using a credit/debit card or not) already has the cost built in to the price of the item(s) being bought.
An amendment to the “Restoring American Financial Stability Act of 2010” brought forth by Senator Durbin of Illinois was passed by a 64-33 vote to give the Federal Reserve the authorization to limit and regulate the interchange fees on debit transactions. The limitation amount is up to the discretion of the Fed. Many banks, credit card companies, and others concerned opposed the amendment that regulation of interchange fees will not benefit the consumer. Lower prices on goods and services could reduce credit availability even further and many usage benefits such as cash-back rewards will be lowered or eliminated.
The purpose or intent of the Interchange Fee amendment is to help out consumers. However, because these fees are already included in the cost of the goods or services being sold, it is highly unlikely businesses will pass the potentially new savings onto customers. Not to mention the fact that relying on the Federal Reserve Board to establish the Interchange Fee threshold level is akin to allowing the banks to set their own fees since the Fed is the regulatory authority for all US banks, this bill could actually prove to be more harmful then helpful to the average American consumer.