October 26, 2009
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Back-Burner Interchange Fees Still Causing Heat, Pt.4
More hashing and thrashing.For a while now, the White House and Congress have been attempting to establish a new agency to oversee consumer protections in the financial sector, involving credit cards and much more. Naturally, the banking and finance communities are adamantly opposed to such an agency meddling in their affairs (or so they feel). As the opposition heightens against the democratic proposal, tools and leverage are being employed from both sides. One of the tools currently weilded by Congress is the credit card interchange fee issue. To no surprise, this is not an area the banking community wishes to address. From this angle, however, it seems that the credit card interchange issue is only being used to promote another agenda.
That being said, however, there is a strong possibility this profile could take a new turn. Currently, the GAO (Government Accounting Office) is conducting a study to determine if the credit card interchange debacle is exacerbating the credit card consumer gouging issue, on the floor at this time. If it is found to be a major factor, the priority of interchange fees could gain importance quickly.
With numbers so large, it seems very likely that the interchange issue will be pulled into something bigger. The retail lobbying group, called the Merchant Payments Coalition, contends the dollar figure to be around $48 billion just over the past year. They say the figure has tripled since the year 2001. It seem almost inevitable that a link will be found showing that, ultimately, the credit card consumers are bearing mush of this brunt in the form of higher prices.
Note, however, that this is only one side of the story. The credit card industry, in the other corner, counters with the reasoning that the rate has remained flat, while the volume of credit card sales have tripled. The obvious reason for the growth itself is the added value credit cards provide to the consumers. Probably some truth on both sides.
The credit card industry also contends that, if the interchange rates were lowered, the consumers would benefit nothing because the merchants would just keep the difference. Now, it may be true, would they could but, in a free market, it is ultimately the consumer who sets the price. If a competitor can deliver a lower price by not keeping the rate difference, the public will eventually move over to that competitor.