Some Questions on the Debit-Reform Story

It strikes me that this Wall Street Journal story on the banks’ “strange bedfellows” opposing debit-card rules probably should have explored that oddity a bit more.

A new rule would slash the debit card fees banks get from each swipe to 12 cents from an average 44 cents now. Those interchange fees cost consumers even when they don’t use plastic, because retailers have to charge more to make up for the lost revenue. This costs a billion dollars a year in a duopoly market where increased competition has had the perverse effect of raising prices for consumers and fattening profits for banks and Visa and MasterCard.

The Journal reports that a big labor union, the National Education Association, has now joined hands with the banks to oppose the new rule. They join the NAACP and the U.S. Hispanic Chamber of Commerce, “which urged further study of the rule to ensure it doesn’t hurt poor and minority consumers by making banking services unaffordable.”

This is all makes you wonder if there might be other reasons these groups are opposing the debit rule. Mike Konczal makes a case that the NEA’s opposition, at least, might be due to the opposition of teachers’ credit unions. So does Adam Levitin. That could be worth some reporting.

Beyond the strange-bedfellows question, Remapping Debate has some interesting reporting in its piece on the debit-card pushback that ought to point the way for the business press. Check this quote out:

“Let’s step back for a second,” said David Balto, a Washington antitrust lawyer and former policy director for the Federal Trade Commission. At least a dozen countries in addition to the twenty-seven that comprise the European Union have decided to regulate interchange fees, “and what you see is… greater innovation abroad than there is the United States,” Balto said. A number of countries, he added, “have no interchange fees at all.” They include New Zealand, Iceland, Finland, Norway, Denmark, the Netherlands, and Canada, which make up “seven of the eight nations [the eighth is Sweden] with the highest per-capita use of debit cards.”

How do those countries get by with no debit fees and have more sophisticated payment systems at the same time? That seems like an interesting angle.

But perhaps most interesting from Remapping Debate’s piece is this:

The banks, however, have not come forward with any data about actual costs and revenues to support their arguments for either a freeze in implementation or a modification of the draft Fed rule. Remapping Debate was unable to find an industry representative willing to say just how the Fed ought to go about calculating debit-transaction costs.

So the banks won’t give us numbers on how profitable debit cards are for them? If that true, and I think it is, that’s a big red flag, no? Why are these groups, much less the supposedly skeptical press, taking the banks’ word for it that they’ll lose money on debit cards? Surely it’s not the financial industry’s reputation for honesty and good citizenship.

Moreover, what are the profit margins on retail banking? How much money do banks make off savings and checking accounts? Why won’t reducing non-transparent debit fees result in lower profit margins rather than transparent higher consumer fees?

There are still a lot of questions to be answered on the interchange story.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,