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Monday, September 21, 2015

Keating Op-Ed: Debit Interchange Cap ‘Distorts the Marketplace’

The Durbin Amendment’s cap on debit card interchange fees is distorting the retail marketplace and harming consumers, ABA President and CEO Frank Keating said in an American Banker op-ed responding to claims by retailers that the Federal Reserve set the fee cap too high.

Keating cited new research from the Federal Reserve Bank of Richmond that showed that of the retailers who have seen their interchange fees drop, “few reduced the prices of their products and passed the savings on to consumers.” Meanwhile, many banks had to drop or curtail free checking because of lost interchange revenues, creating a double loss for consumers.

“The fact is that price controls come with unintended consequences that arbitrarily create winners and losers in the marketplace,” Keating wrote, noting that the Richmond Fed study found that interchange costs went down for sellers of big-ticket items but increased for merchants that process small-dollar transactions. “That’s a direct — and unintended — consequence of the government’s attempts to micromanage marketplace pricing,” he explained. “Market forces react to such arbitrary price controls in unforeseen ways.”

Read the op-ed.

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