Independent group finds areas of concern on interchange amendment
06/11/2010 09:13 am
The House and Senate conference committee met Thursday to begin discussions to reconcile the differences between the two financial reform bills. While the conference was making opening statements, an independent group released a closer look at the interchange amendment in the Senate bill. The Mercator Advisory Group found find areas of concerns and five false assumptions with the amendment.
The five areas of concern:
The cost of financial services will rise for consumers across a wide range of economic levels.
The largest issuers will have less of an incentive to promote debit related products and services and will either shift activities toward credit-based services or will cover their costs differently by fee-based approaches to debit accounts.
The smaller financial institutions, though exempt from portions of the amendment, are unlikely to escape undamaged. This is evident as wide government mandated pricing discrepancies between large players whose fees are price-controlled and smaller exempt issuers would be difficult to sustain from a network perspective. This problem is recognized in major public statements by smaller issuers expressing concern over the loss of their customers to those institutions mandated to charge artificially low rates. Examples of the concerns of smaller institutions include the following press releases: “Consumer choice imperiled by interchange amendment: CUNA/ICBA” (5/28/2010), and “NAFCU to CUs: Keep up interchange fight “ (5/28/2010)
State and federal agencies that have recently migrated public benefit payments from paper checks to prepaid card programs are growing increasingly alarmed at the impact this legislation would have on these programs and their ability to continue supporting them without additional funding sources.
Merchant benefits may not be as robust as anticipated. While direct debit interchange costs may be lower (depending on the current rates which vary widely), merchants may see a shift in consumer usage toward credit products, a decline in average ticket size as fewer cardholders opt for debit in an environment with lower promotional activities, or more transactions
The five areas of falsehoods:
The amendment falsely assumes that debit cards and checks are a functionally equivalent, or similar, payment scheme which implies that a common cost structure exists under which these forms of payment are processed.
Proponents of the amendment incorrectly assert that small financial institutions are protected from harm.
The amendment also appears to assume, contrary to prevailing evidence, that regulation of payment schemes operating in the U.S. economy will improve market conditions and benefit consumers.
Proponents of the amendment incorrectly assume that imposing price controls would not have broad, sweeping unintended consequences for key stakeholders.
The amendment incorrectly assumes that all debit card value chains are the same and so failed to identify that prepaid cards, which run under the debit scheme, will cost more for both government and low/moderate income (LMI) citizens.