The very day that the Durbin Amendment went into effect, Visa’s corporate office began to turn the law to its own advantage. Interchange regulation was meant to break the Visa-MasterCard duopoly that forces small businesses to pay unreasonable fees and consumers to pay higher prices. But Visa, without hesitation, twisted the law to take advantage of loopholes, fatten their bottom line, and actually increase their hold on the market. [...]
Before the Durbin Amendment, a one-store coffeeshop might pay a 7-cent fee on a $ 2 cup of coffee and a 35-cent fee on a $ 20 group order. Durbin hoped to cap the latter fee at 23 cents, and leave the first unaffected: a ceiling, not a guideline. Instead, that $ 2 coffee may now come with a 22-cent interchange fee, an increase of over 200%, which will result in higher prices for consumers. Visa and MasterCard’s actions ensure that, far from paying lower interchange fees, small merchants will actually face much higher costs than before. [...]
[A] new Visa fee, which has gone largely unnoticed, will hinder merchants’ ability to process cards on other networks and will leave them vulnerable to long-term price increases. Visa announced in its third quarter earnings call that it would introduce a network participation fee (NPF): a flat charge levied on retailers who accept any Visa cards, be they credit, debit or prepaid debit cards. In exchange, merchants will pay a lower variable interchange rate.
The same old story: regulations are passed to limit abusive or monopolistic behavior by companies; the companies work to skirt the intent of law, requiring more regulation. Repeat indefinitely.
It’s particularly interesting how many stories of new abuses by the financial sector have been coming out lately, even as anger at past abuses by those companies continues, in the form of Occupy Wall Street and in more generalized public animosity, to increase. There seems no apparent effort by the companies to temper their public images; on the contrary, the race toward squeezing consumers for every last dime (new debit card fees, new checking account fees, etc.) seems to be being conducted with newfound aggression.
Before, the companies were charging outrageous fees for something that worked to decrease, not increase, their own costs. Now they may be setting up a post-Durbin Amendment scheme where they will be charging more money from each debit card transaction from both merchants and consumers. And, short of yet another round of regulation, there seems absolutely no way to blunt it.
Perhaps this, too, is something government needs to take over. Electronic transactions are increasingly taking the place of cash. Banks, apparently, are not going to be able to handle the role of facilitator in all those transactions, at least not without insisting that a notable percentage of the entire domestic economy be siphoned off in the process. I have little doubt that a government-run entity could get the cost down to a fifth of the current transaction fees, if not less.
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