Interchange Fees: GAO Recommends Caution on Regulation

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Local, community banks and credit unions collectively earn only 20% of the card transaction revenues earned, while the top 10 banks keep 80%. It seems to me this fact should be considered along with the need of US merchants and consumers to have a card option to use that is affordable. Considering leveling the playing field between US and foreign exchange rates is a good idea in an international retail, online market that grows despite downturns in brick and mortar retail sales.

Jim Simpson of OH 10:21AM May 10, 2010

Brian from Florida makes an assumption that retailers will pass along savings from any reduced interchange fees to the consumers. He also makes the assumption that card issuers will not pass along more costs to the consumers if interchange fee income from merchants is reduced. Both assumptions are false.
If a local utility reduces energy costs to retailers, do those retailers then reduce the costs of their products and services to their consumers? You can be the judge on that but I highly doubt it. Energy costs are an associated cost of doing business, just like costs associated with someone paying for a purchase. At least an interchange fee is associated with an actual sale transaction.
Card issuers do have costs associated with issuing cards, processing cards, funding transactions, and picking up the tab on fraud connected to card transactions. Card issuers also have to pay power bills as well. It is ironic that a good deal of the data breach losses are due to merchant mishandling of sensitive data. If interchange income is reduced to card issuers, card holders will bear additional costs to own and use credit and debit cards.
I doubt that the increased costs to consumers from card issuers will be matched by reduced costs on goods and services from the merchants. The net effect - more costs to consumers.
This entire interchange fee dispute falls under the category "if it ain't broke, don't fix it".

Greg Olmsted of AL 5:57PM February 17, 2010

Senator Dick Durbin recently talked about how the U.S. banking industry ‘owns’ Washington. The GAO report on interchange fees proves Senator Durbin is correct.
The average interchange fee in the U.S. is seven times the interchange fee set by Visa and MasterCard in countries throughout the rest of the world. Using 2008 figures, if the interchange fee charged by credit card issuers was decreased (via comprehensive credit card reform legislation) from the current 2.10% to 0.60%, the result would be an annual savings of approximately $34.3 billion for U.S. merchants and consumers. Credit card issuers could retain 0.3% as a processing fee, the remaining 0.3% could be a “tax” used to fund a Natural Disaster Trust Fund (NDTF). In 2008, this would have generated $6.86 billion in funding for a NDTF.
Let’s be clear. The interchange fee is a hidden tax, just not a tax subject to political control or for which there is any discernible social benefit. Decreasing, and imposing a transparent tax on, the interchange fee would have the same stimulus effect of a tax break, but without an impact on the federal budget.
The following article discusses how comprehensive, standardized, simplified, and transparent credit card reform legislation may fund a Natural Disaster Trust Fund.
http://www.csnews.com/csnews/images/pdf/creditcardreform.pdf

Brian J. Donovan of FL 7:15PM November 19, 2009