Interchange Legislation: How would you vote?

Every now and again, the credit union sends out a mass e-mailing to lobby members to ask elected representatives to vote this way or that on matters that affect credit unions in specific and banking in general. Normally I think yup yup yup! what’s good for my credit union is good enough for me and do as I’m told. This time, though, they’re asking us to weigh in on the “interchange legislation” that is part of the new financial regulatory reform act.

And I’m not so sure.

We’re told in the e-mail:

A new amendment under consideration by legislators will benefit merchants and soon you could be paying more to use your debit and credit cards. Merchants are asking legislators to reduce their fair share of the cost of the card payment system.

If they are successful, merchants will:

• Dictate which debit and credit cards they will accept and where they will be accepted

• Limit your ability to choose your preferred payment methods

• Be allowed to set minimum and maximum amounts for credit card purchases

• These changes could result in higher costs at checkout, and fewer rewards and benefits for your debit or credit card. You can protect your preferred method of payment by acting now!

Oh. Eeek. I’m afraid. I’m very afraid.

This bit of slippery-slope logic led me to wonder what on earth they’re going on about, so I hit the link to the boilerplate they would like us to send to our legislators. Here, the proverbial plot thickens.

Here we’re told that the new legislation would include “a provision that would mandate price controls on the interchange fees paid by merchants for accepting debit cards. This bill has unintended consequences for credit union members and every consumer with a debit card in his or her wallet.”

Price controls on “interchange fees“… What we’re talking about here is the amount that retailers have to pay for the privilege of letting you and me rack up our purchases on credit and debit cards. This can be a significant zing. The charges vary from card to card, which is one reason that a lot of vendors won’t accept American Express…it’s mighty expensive.

Agreements with all the major credit-card purveyors forbid merchants from offering a discount to customers who pay in cash. That’s one of the things the lobbyists who want you to write to your legislator are exercised about.

Soooo… At this site, you can broadcast your pro-banker opinions to any and all of your federal representatives using any or all of the following boilerplate:

As a constituent and a credit union member, I am writing to urge you to oppose inclusion of the Senate-passed interchange provision in the final financial reform bill. This provision will have unintended consequences for credit union members like me and every consumer with a debit card in his or her wallet. It has not been thoroughly studied and does not belong in this bill.

Merchants receive tremendous benefits when they choose to accept debit and credit cards as a form of payment. They are paid immediately, and they do not have to deal with cash or wait for a check to clear. Like electricity or rent, the interchange fee that the merchant pays is a cost of doing business. Government rate controls on interchange reduce the merchants’ responsibility to pay for the benefits received from the card payment system and will drive up costs for credit unions and their members.

My credit union incurs significant expenses in operating its card payment system. For example, my credit union is responsible for administration of card programs, customer call centers, and reissuing cards in cases of merchant fraud. Interchange supports these costs. If interchange fees were reduced, my credit union and other small financial institutions would be forced to raise rates and fees for card services. My credit union might even have to curtail debit and credit card services for members, and that might force me to move my account to a big bank that offers cards at a higher price. Furthermore, there is no evidence to suggest that merchants would pass along any savings resulting from lower interchange to consumers.

This provision offers no real “exemption” or “carve-out” for credit unions; if it were included, merchants and big banks would set rates that would make it impossible for my credit union to compete. In the end, merchants could refuse to accept the credit union debit card I rely on for everyday purchases.

The interchange provision requires a more thorough review and does not belong in this bill. I urge you to oppose its inclusion in the final financial reform bill and hope you will ask conferees to keep this provision out of this bill.

The little red arrows are widgets that allow you as the “author” of the legislator spam to choose whichever paragraph you choose.

Soooo… The question is this: Is what’s good for my credit union good for me? And you? Should there be no cap on the amount banks are allowed to require merchants to pay just because their customers think it’s handy and dandy to rack up debt on credit cards and overcharges on debit cards? (Or not: some of us don’t charge up more than we have in the bank in any given month…but still!). Why should a merchant have to pay for our convenience, especially when the purveyor of our convenience is making a freaking ton of money off of us?

And what happens when your grocer, your toy store, your veterinarian, your clothing shop has to pay Visa, MasterCard, or American Express so that you can use Visa, MasterCard’s, and American Express’s startlingly profitable plastic?

Oh, yes: we do know what happens. The cost gets passed along to you and me! Everything we buy from retailers across the nation and around the world costs more because we’re paying the surcharge in the form of higher prices at the checkout stand.

Well.

If the Safeway gave me a discount for buying a week’s groceries in cash, I would cheerfully break out a fistful of dollars or write  a check. If Chuck’s Auto Service, the premier car mechanics in central Phoenix, would exempt me from interchange fees if I paid cash, I would be mighty happy.

All right. All right. Debit and credit cards are very handy, and I admit to using my AMEX card because it is just downright convenient. I don’t like to carry cash around—having been robbed once, I know I can’t collect for lost cash from an insurance policy, and I know my losses from a stolen credit card are capped at $50. Very nice. And I do hate dorking around with writing a check and jumping through the merchant’s check-cashing hoops every time I make a purchase.

What about that kickback I’m getting from Costco’s American Express card? It amounts to 3 percent for gasoline charges, 3 percent for restaurant bills, 2 percent for travel costs, and 1 percent for everything else. Well, I hardly ever go out to eat (which means instead of a 3 percent kickback for food, I only get 1 percent), and I never travel. So it wouldn’t harm me to pay cash for restaurant meals and grocery bills, especially if I got a 1 to 3 percent discount for doing so. Because paying cash at a gas station is a hassle, I’d probably still charge gasoline, unless the cash discount were significantly more than 3 percent.

But if this legislation puts credit card issuers out of business (why do I think it won’t?), do I care? Will my world end if I have to write a  check or pay with actual dollars for everything? Well, in a word, “no.”

No x 2.

How do you feel about this matter? Do you think credit card issuers should be allowed to continue the status quo? Is there a difference between debit and credit cards issued through credit unions and those issued through banks? If so, what is it?