Interchange Fee Regulation (Partially) Survives

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Dick Durbin (D–Ill.) has apparently reached a deal that would mostly keep his amendment to regulate debit card interchange fees intact in the final financial reform bill. The original version regulated both the fees charged to merchants and the fees charged to banks:

The House will seek to maintain the Senate’s proposed cap on debit-card interchange, or “swipe” fees, according to Representative Barney Frank, the Massachusetts Democrat leading talks to produce a final regulatory overhaul bill. The plan from Senator Richard Durbin would empower the Federal Reserve to set fees charged to merchants that are “reasonable and proportional” to the cost of processing debit transactions.

….The compromise prevents the Fed from regulating “network fees” that Visa and MasterCard charge to banks on each transaction as long as the fees aren’t used to “circumvent” interchange regulation, according to Durbin, the Illinois Democrat and majority whip. Reloadable prepaid cards, including those used to disburse government benefits, would be exempt.

This isn’t too bad as these things go. Merchants and consumers really don’t have much bargaining power when it comes to interchange fees, so regulations there make sense. Big banks, however, do, so letting them fight it out with Visa and Mastercard on their own sounds OK to me. (Though the additional language adds complexity that banks will almost certainly find some way to exploit. That’s unfortunate.)

I wouldn’t mind seeing some regulation of credit card interchange fees as well, but that wasn’t in Durbin’s amendment to begin with and it’s a secondary issue. Debit card interchange fees are the bigger abuse since banks are literally doing nothing there except moving money from one account to another. Add this to the recent rules reining in overdraft fees and we’ve made some real progress on the consumer finance front. We only got about half of what we should have, but that’s better than nothing.

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