Now that the retail lobby in Washington sort of got what they wanted with the cap on debit card interchange fees, they’re ready for a new challenge. According to this story from The Hill, limiting the interchange fees on credit cards is the next target. The interchange fee is the fee that retailers have to pay the banks when you pay for an item with a credit card.
This is so bad for consumers on so many levels, I hardly know where to begin. Listen, I know it feels good to stick it to the banks. I totally get that. I’m a consumer advocate, for crying out loud. But limiting the interchange fee on credit cards isn’t a win for consumers.
The Road to Hell is Paved with Good Intentions
In case you haven’t followed this story, the Durbin Amendment was the legislation that placed a cap on what banks can charge merchants for debit card interchange fees. I think Durbin had the best of intentions. I really believe that. But the market doesn’t stand still for price controls. It just doesn’t. You put a limit on one fee, and another fee pops up and punches you in the nose.
Think about this: To make up for the lost revenue on debit card interchange fees, banks are starting to charge monthly fees if you use your debit card. That’s an example of a new fee popping up to replace the lost revenue. There are exceptions, of course. The Credit CARD Act of 2009 is an example of legislation that helped consumers. Yes, a few new fees popped up. But before the CARD Act, the credit card industry was like the Wild West. The CARD Act added some much-needed protection to consumers. It’s far from perfect and there are still plenty of loopholes, but it was a good start.
Once it sunk in that the CARD Act would likely happen, we saw interest rates rise because issuers wanted to get as much revenue as possible before the regulations took place. I’d expect to see similar jockeying for revenue if the push to cap the interchange fees on credit cards gets very far. This would be a terrible blow to consumers who are using credit cards to make ends meet right now.
It’s About Them, Not You
This latest idea to cap the interchange fees on credit cards isn’t about helping you. It’s about retailers trying to save themselves money. Nothing wrong with that. The retail industry is an important part of a healthy economy and I understand they’re hurting.
But in this case, and this is pointed out in the aforementioned story in The Hill, retailers really do gain an advantage from accepting credit cards. Consumers spend more money when using credit cards. The retailers are the only ones who stand to gain and consumers will end up paying for it.
I think that’s a dastardly thing to do to consumers in this economy. The retailers say they can pass on savings to the consumer. Oh, really? I’d like that in writing, please.
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What You Can Do to Protect Yourself
This whole issue is just getting started. You can count on me to keep an eye on this. In the meantime, be sure you read all your mail from your credit card issuer. If you’re being hit with a rate increase or some other crazy fee, you want to know as soon as possible.
And remember, whether you get new fees on your debit card or on your credit card, you don’t have to take it. You’re the consumer and you’re in charge of your financial life.
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Image: Erik Ostrom, via Flickr.com