This statement argues that the proposal to reduce the debit card interchange rate change usurps the market’s price setting mechanism. While the intent would seem to be to benefit both consumers and retailers by lowering the cost of business, price fixing virtually always leads to unintended consequences and likely will do so again in this case. Retailers, who will profit from the reduction in related debit card fees may choose to hold onto the gains as added profit or use the savings to lower product prices. They will probably do a combination of both. The net financial result is that consumers would save a little bit from retailers who pass through savings but will see increased banking fees necessary to offset to forced reduction in debit fees. Functionally, the action will force banks to move customers away from debit cards contrary to the strong trend in recent years of increased debit card use.
Tower Bridge Advisors: Debit Card Interchange Fees and Routing
December 23, 2010