I had recently heard lobbyists and analysts say that Durbin’s interchange amendments wouldn’t even come to a floor vote. Someone on the hill told me once that interchange was the issue that everyone hopes will go away.
Adam Levitin has the writeup:
The amendment instructs the Federal Reserve to regulate debit interchange fees and requires that the fees be reasonable and proportional to the costs of the issuer or the payment network. The amendment also restricts certain merchant restraint rules for credit and debit payments. It prohibits restrictions on minimum and maximum transaction amounts for credit and debit, and it prohibits restrictions on merchants offering discounts to steer transactions among networks or to other forms of payment (the existing Cash Discount Act does not clearly protect debit discounting, for example, and the card networks’ rules largely frustrate discounting as it is).
The amendment doesn’t address all of the problems with interchange, and I would have preferred to see surcharging, rather than discounting, but it’s a very good start (and I think arguably the Fed could permit surcharging as part of regulations implementing the amendment). Of particular importance is that (if the amendment becomes law) a federal regulatory agency is now clearly vested with authority to regulate interchange, and that reasonable and proportional is set as the standard for the level of the fees. That’s a major change from the current situation in which interchange is beyond the regulatory sphere. To be sure, there’s no analogous provision in the House bill, which raises an issue for conference, if the Senate bill passes, but this is a major step forward on fixing the interchange market.
In case you didn’t catch it the first time through, here’s Andrew Martin’s article on interchange from January of 2010, I think the best single article on the subject I’ve seen (I wish I had written it). If you are uncertain whether or not a merchant should have the right to sell his or her items at different prices for different payment types, this should make it clear.
When you think of this as a de facto VAT consumption tax the banks and credit cards charge, a tax that is distributed to shareholders through dividends and the upper classes in benefits, and a tax for a mechanism that was once a novelty that provided “lift” but now is increasingly the new normal form of payment it all looks like it’s becoming an increasingly bad deal for businesses.
So bringing interchange under the regulatory umbrella, and, more importantly, giving business some choices over how they can charge for debit transactions (which is all this amendment covers) will immediately begin to jumpstart a real market here. As the New York Times report (excellent article at that link):
According to a 2008 survey by the National Federation of Independent Business, 13 percent of small businesses have a minimum purchase requirement for credit cards, even though that violates their contract, and 14 percent offer a cash discount. Fully 29 percent said they would institute a surcharge for paying by credit card if they could…
Yet with Mr. Durbin’s amendment placing these rules actually on the Senate’s agenda, the federation has been curiously quiet. It was not, for example, among the 134 trade associations that signed a letter on Wednesday supporting the measure. Also conspicuously absent: the United States Chamber of Commerce, which says it represents nearly three million small businesses. Neither organization responded to a request for comment.
If this is an issue the Chamber of Commerce can’t get behind, who do they even represent?
Also congratulations to The Credit Card Con people, who gave me this statement: Bob Johnson, who I interviewed here about all this, gave me this quote: “The passage of the Durbin amendment is a huge win for small businesses across the country. I applaud the U.S. Senate for standing up to Visa, MasterCard and big banks; American consumers and small businesses will be better off as a result.”