Beware Those Unintended Consequences

With a financial system as sophisticated, complicated and interconnected as ours, it shouldn’t come as any surprise that there are no easy fixes.  We didn’t need anyone to tell us that the interchange amendment was a bad idea.  We’ve opposed it since it first surfaced.  Even with a well-intentioned exemption for banks with less than $10 billion in assets, the amendment will harm community banks and our customers, stifle competition, and lead us down the thorny path of government price fixing and controls.  I think everyone agrees there is no place for that in a free market society. 

As the unintended consequences of the interchange amendment begin to sink in across the country, suddenly there’s an upsurge of groups—from the hip to the hapless, from the overleveraged to the underbanked, both public and private—that are joining ICBA in opposition to the interchange amendment.  State treasurers and state benefits administrators from 15 states are telling Congress that the amendment would undermine the government’s push to go paperless by providing benefits through the use of debit or prepaid cards.

“Quite simply, the financial institutions that issue these prepaid debit cards do so at little or no cost to states because they are able to rely on interchange to cover their costs,” 10 state treasurers wrote in a letter to Congress.  “If the Durbin amendment becomes law, this will no longer be the case and we are seriously concerned about the viability of these programs.  Even if these programs continue, we are concerned that financial institutions will be forced to raise fees on cardholders or States to recoup lost revenue.”

Russell Simmons, hip hop promoter and co-founder of Def Jam, has told Congress the amendment would eliminate a system that benefits the poor.  And now there’s a white paper by a George Mason professor that points out the problems of government interventions. 

The chorus grows louder every day, and what that chorus is saying is: “If it ain’t broke, don’t fix it.”

 (An even better way to advise your representative is through our Interchange Amendment Action Alert)

4 thoughts on “Beware Those Unintended Consequences

  1. Cam,

    As usual right on again. It’s time for members of Congress to really start listening if they want to address the real problems that are out there and not create new ones!!


  2. Well said.

    If merchants determine that accepting credit and debit cards is too costly for their business, then they should opt to accept only cash or check.

    The government expects a safe, sound, and efficient banking system, but doesn’t want anyone to have to pay for it. What industry can survive by offering a product or service at or below it’s cost?

    Thanks to the ICBA for the work it has done and will continue to do on behalf of community banks!

  3. The 10 State Treasurers who joined in opposition to interchange price controls acknowledge the system works and that issuers need revenues to cover costs. If this is true in providing services for the large balance accounts of state Treasurers, it is also true regarding the millions of consumer accounts with debit card access to the merchant payment system and ATMs.

  4. I’ll say AMEN to that. After reading the “new, improved” changes to the Durbin Amendment today, I am more discouraged than ever. Do politicians not know that WalMart quit taking MasterCard a while back, and an agreement was worked out between two free-market businesses? That is how it is supposed to be. The nightmare coming down the pike will be (1)another goverment bureaurocracy requiring a (2)ridiculous amount of expense documentation as we (3)fight for enough interchange fees to partially defray our costs. These are dark times for banks who are already struggling to survive, while we send money to the FDIC to fund bank failures. Change, you say? I’m ready for a change!

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