Mica in Bankrate: History shows consumers lose in interchange controls

WASHINGTON (6/14/10)—In an online article by credit card expert Leslie McFadden in Bankrate.com, Credit Union National Association (CUNA) President/CEO Dan Mica says that if merchants win their fight to get government price controls on interchange fees, history shows consumers will reap no benefit.

Mica, quoted extensively in an article called "Would debit interchange reform help consumers?," notes that merchants argue that their government-enforced cost savings on fees charged to participate in the electronic payments system would promote savings for consumers.

That's not what recent history shows, Mica pointed out.

Savings were not passed on to consumers in Australia where government stepped in 2003 and regulated regulate interchange fees, Mica noted. The article, in fact, point out that a study executed by economists in the London office of CRA International revealed quite the opposite. The research found that the Reserve Bank of Australia's reductions in interchange fees increased annual fees and reduced card benefits for consumers.

Mica also made the point that a provision meant to carve out small institutions—like credit unions from the reach of the interchange language--could actually penalize both smaller institutions and the customers that use their debit cards.

"Under this senate amendment they would allow the networks--American Express, Visa, MasterCard-- to, with this so-called carve out, to allow credit unions to get more of a fee," Mica says.

However, credit unions and community banks know that if merchants are able to pay less in interchange for a big bank's card, which would be covered by amendment, they could simply ask customers to use card other than the one from the small issuer. Mica explains that the provision would not prevent such discrimination.

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