Why we should cap interchange fees
Keith Bradsher’s NYT story on Australian credit-card fees kicks off with an eye-opening anecdote:
When Steve Franklin bought four plane tickets on Qantas last June, he faced an unexpected expense: a surcharge of 7.70 Australian dollars on each of the 136.70 dollar ($126) tickets — just for using his Visa credit card…
Now, as Congress debates how to rein in credit and debit card companies in the United States, Australia’s experience is being pointed to as an example of just how tricky that can be: for one thing, if regulators limit one fee or rate, banks are likely to find another way to keep revenue flowing.
It’s not until the very end of the 1,400-word article that Bradsher sees fit to inform us that “no one is suggesting outright surcharges for paying with a credit card in the United States” — and he never mentions that airline surcharges are a very special case, because of those holdback charges.
That said, if you start introducing legislation which decreases the amount of money that credit card companies get from hidden charges, it’s almost certain that you will increase the amount of transparent charges that credit-card companies will start imposing. And when people start seeing new charges, they use their cards less:
The main consumer federation in Australia, Choice, says that while regulations here have had a few unintended consequences, they have created incentives for retailers and consumers alike to rely more on debit cards, which have much lower processing costs, instead of credit cards.
That’s already happening in the US, and the trend will accelerate if new legislation gets introduced, and it’s a good trend to see accelerate — especially now that banks are being banned from imposing unasked-for overdraft fees on debit-card purchases. (Mike Konczal has a good post up today on the way that hidden fees can force invidious choices.)
Interchange fees on both debit cards and credit cards are rising, and in general it’s a bad thing when banks start making billions of dollars from hidden fees that very few people ever see. Much better to cap those fees and force the banks’ income sources out into the open where consumers can make their own decisions about whether and how they want to pay them. One consequence is likely to be that total credit-card indebtedness will fall. And we should all be happy about that.