Wash. Times: Interchange limits equal higher check/ATM fees

WASHINGTON (6/10/10)--Citing credit union concerns specifically, the Washington Times weighed in on the interchange battle raging right now in Washington, and in an editorial Wednesday said that asking the Federal Reserve to determine rates charged for use of the payments network would lead to consumers paying higher fees for checking and for ATM use.

The editorial notes that "representatives from 1,000 credit unions around the country have descended on Congress for an 'all-out assault'" to oppose the interchange amendment. It quotes the Credit Union National Association's top lobbyist, John Magill, who explains how "congressional meddling with the fees" would create unintended consequences that would harm credit union members.

The editorial notes that lawmakers are being asked to take a stand on whether the government should be allowed to carve out a role in fee setting as congressional leaders continue to meet to hammer out differences between House and Senate versions of the financial regulatory reform bill. The Senate version contains the provision, added during the final amendment process, that would ask the Fed to determine fees for, as the editorial put it, "use of the payment network built by Visa, MasterCard and other companies."

The Washington Times piece notes:

  • Fees vary, but based on industry averages, when a customer buys a $100 item from Wal-Mart using debit, the store keeps roughly $98. The remaining $2 takes care of the costs of processing the transaction and covering losses from fraud. The interchange fee, $1.50, goes to the bank that issued the card, and 50 cents goes to Wal-Mart's bank, which handled the initial transaction; and

  • It's important to note that [financial institutions], not credit-card companies, issue cards. Without the fee, [financial institutions] would have no incentive to offer such cards.
Merchants, pushing for lower fees through government intervention, have worked to convince lawmakers that consumers would benefit if retailers pay lowered interchange fees.

The Times editorial says to that: Government by good intention frequently results in...unintended consequences. That's why Congress should not get involved in picking winners and losers in this battle. Banks need incentives to issue cards, and businesses need incentives to accept them. The market, not the Fed, is most able to strike the right balance.

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